<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended December 31, 1997 Commission File Number 0-5206
EMONS TRANSPORTATION GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2441662
--------------------------------------------
(State of Incorporation) (I. R. S. Employer Identification No.)
96 South George Street, York, Pennsylvania 17401 (717-771-1700)
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code) (Telephone No.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
The number of shares of each class of common stock of the registrant issued
and outstanding as of December 31, 1997 is as follows:
Voting Common Stock 6,032,029
---------
1
<PAGE>
EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,331,397 $ 1,515,188
Accounts receivable, net 1,926,667 2,405,304
Materials and supplies 139,280 87,154
Prepaid expenses 314,670 338,512
Deferred income taxes 70,000 70,000
--------------- ---------------
Total current assets 4,782,014 4,416,158
--------------- ---------------
Property, plant and equipment 30,841,382 29,042,149
Less accumulated depreciation (10,234,174) (9,649,440)
--------------- ---------------
Property, plant and equipment, net 20,607,208 19,392,709
--------------- ---------------
Deferred expenses and other assets, net 561,496 493,008
--------------- ---------------
TOTAL ASSETS $ 25,950,718 $ 24,301,875
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,175,241 $ 887,791
Accounts payable 1,166,275 1,045,742
Accrued payroll and related expenses 1,010,062 995,880
Income taxes payable 44,219 81,569
Other accrued expenses 1,281,695 1,267,343
--------------- ---------------
Total current liabilities 4,677,492 4,278,325
Long-term debt 11,337,559 10,976,339
Other liabilities 828,592 814,040
Deferred income taxes 1,794,000 1,794,000
--------------- ---------------
Total Liabilities 18,637,643 17,862,704
--------------- ---------------
Stockholders' Equity:
Cumulative convertible preferred stock 15,391 16,509
Common stock 60,320 58,006
Additional paid-in capital 23,734,772 23,503,442
Deficit (16,138,463) (16,789,121)
--------------- ---------------
7,672,020 6,788,836
Unearned compensation - restricted stock awards (358,945) (349,665)
--------------- ---------------
Total Stockholders' Equity 7,313,075 6,439,171
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,950,718 $ 24,301,875
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------------- --------------------------------
1997 1996 1997 1996
------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Operating revenues $ 4,070,869 $ 4,094,299 $ 8,173,826 $ 8,024,193
Operating expenses:
Cost of operations 2,721,454 2,770,865 5,495,592 5,446,778
Selling and administrative 786,225 761,175 1,550,384 1,496,545
-------------- -------------- ------------- --------------
Total operating expenses 3,507,679 3,532,040 7,045,976 6,943,323
-------------- -------------- ------------- --------------
Income from operations 563,190 562,259 1,127,850 1,080,870
Other income (expense):
Interest income 23,839 21,875 49,250 43,319
Interest expense (201,340) (249,165) (549,434) (500,673)
Other, net 65,992 - 65,992 -
-------------- -------------- ------------- --------------
Total other income (expense) (111,509) (227,290) (434,192) (457,354)
-------------- -------------- ------------- --------------
Income before income taxes 451,681 334,969 693,658 623,516
Provision for income taxes 22,000 131,000 43,000 244,000
-------------- -------------- ------------- --------------
Net income 429,681 203,969 650,658 379,516
Preferred dividend requirements 53,962 58,696 110,849 117,504
-------------- -------------- ------------- --------------
Income applicable to common shareholders $ 375,719 $ 145,273 $ 539,809 $ 262,012
============== ============== ============= ==============
Weighted average number of common
shares (Note 2):
Basic 5,924,296 5,745,570 5,873,694 5,727,596
============== ============== ============= ==============
Diluted 7,788,474 6,317,475 7,801,699 6,256,963
============== ============== ============= ==============
Earnings per common share (Note 2):
Basic $ 0.06 $ 0.03 $ 0.09 $ 0.05
============== ============== ============= ==============
Diluted $ 0.06 $ 0.02 $ 0.08 $ 0.04
============== ============== ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 650,658 $ 379,516
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 603,153 592,336
Amortization 59,665 63,918
Gain on sale of assets (26,236) --
Gain on forgiveness of debt (39,756) --
Increase in deferred income taxes -- 170,000
Changes in assets and liabilities:
Accounts receivable, materials and
supplies and prepaid expenses 450,353 221,783
Accounts payable and accrued expenses (138,283) (335,490)
Other assets and liabilities, net 138,293 26,313
----------- -----------
Net cash provided by operating activities 1,697,847 1,118,376
----------- -----------
Cash flows from investing activities:
Proceeds from sale of assets 574,125 --
Additions to property, plant and equipment (732,842) (1,633,335)
Investment in acquired rail properties (904,699) --
Increase in deferred expenses (19,688) (13,316)
----------- -----------
Net cash used in investing activities (1,083,104) (1,646,651)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of note payable 250,000 --
Proceeds from issuance of long-term debt 8,109,092 1,176,719
Reduction in long-term debt (7,977,666) (496,148)
Debt issuance costs (206,335) --
Proceeds from issuance of common stock 26,375 4,125
----------- -----------
Net cash provided by financing activities 201,466 684,696
----------- -----------
Net increase in cash and cash equivalents 816,209 156,421
Cash and cash equivalents at beginning of period 1,515,188 1,265,373
----------- -----------
Cash and cash equivalents at end of period $ 2,331,397 $ 1,421,794
=========== ===========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
The Company issued 85,000 shares of common stock valued at $171,000 in
December 1997, in connection with the acquisition of substantially all of
the assets and leases of four railroad operations, eight locomotives and
track equipment.
The Company entered into sale-leaseback transactions in December 1997,
for ten locomotives in the amount of $557,000.
See accompanying notes to consolidated financial statements.
4
<PAGE>
EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended December 31, 1997
(unaudited)
Note 1. Quarterly Financial Statements
The information furnished herein has been prepared in accordance with
generally accepted accounting principles. In the opinion of the management of
Emons Transportation Group, Inc. (the "Company" or "Emons Transportation
Group"), all adjustments (which include only normal recurring adjustments)
considered necessary to present a fair statement of the results for the periods
covered by this report have been made. Results for the interim periods are not
necessarily indicative of annual results.
Note 2. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per
Share." SFAS 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997, and requires restatement of
earnings per share data for all prior periods presented. The Company has adopted
SFAS 128 in the current quarter of fiscal 1998 ended December 31, 1997.
Basic earnings per common share is computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
period. Diluted earnings per common share is computed by dividing net income by
the weighted average number of common shares and dilutive potential common
shares outstanding during the period. Diluted earnings per common share for the
three and six month periods ended December 31, 1997 include conversion of
convertible preferred stock, while diluted earnings per share for the three and
six month periods ended December 31, 1996 do not include the conversion of
preferred stock because the effect of such inclusion would be anti-dilutive.
Earnings per share amounts are computed as follows:
<TABLE>
<CAPTION>
For the Three Months Ended December 31,
------------------------------------------------------------------------
1997 1996
---------------------------------- ----------------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C>
Net Income $429,681 $203,969
Less: Preferred dividend require-
ments (53,962) (58,696)
-------- --------
Basic EPS
Income applicable to
common shareholders $375,719 5,924,296 $0.06 $145,273 5,745,570 $0.03
===== =====
Effect of Dilutive Securities
Stock options and warrants 476,579 571,905
Convertible preferred stock 53,962 1,387,599
-------- --------- -------- ---------
Diluted EPS
Income applicable to common
shareholders plus assumed
conversions $429,681 7,788,474 $0.06 $145,273 6,317,475 $0.02
======== ========= ===== ======== ========= =====
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended December 31,
------------------------------------------------------------------------
1997 1996
---------------------------------- ----------------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 650,658 $379,516
Less: Preferred dividend require-
ments (110,849) (117,504)
---------- --------
Basic EPS
Income applicable to
common shareholders $ 539,809 5,873,694 $0.09 $262,012 5,727,596 $0.05
===== =====
Effect of Dilutive Securities
Stock options and warrants 502,805 529,367
Convertible preferred stock 110,849 1,425,200
---------- --------- -------- ---------
Diluted EPS
Income applicable to common
shareholders plus assumed
conversions $ 650,658 7,801,699 $0.08 $262,012 6,256,963 $0.04
========== ========= ===== ======== ========= =====
</TABLE>
A reconciliation of the effect of this accounting change on previously
reported primary earnings per share ("EPS") data is included below. The Company
did not previously present fully diluted earnings per share amounts because the
effect on earnings per share was not material.
<TABLE>
<CAPTION>
Period Ended December 31, 1996
------------------------------------
Three Months Six Months
------------ ----------
<S> <C> <C>
Primary EPS as reported $ 0.02 $ 0.04
Effect of SFAS No. 128 0.01 0.01
------- -------
Basic EPS as restated $ 0.03 $ 0.05
======= =======
</TABLE>
Note 3. Interest Rate Hedging Agreement
On August 15, 1997, the Company entered into a Loan and Security
Agreement (the "Agreement") with a new lender which provided a $7,775,000 seven
year term loan, which was utilized to retire existing bank indebtedness, and a
$2 million working capital facility, which is available to help fund the
Company's internal growth activities and acquisition program. The Agreement
required that the Company enter into an interest rate contract by September 30,
1997, including an interest rate cap or similar interest expense hedging
arrangement, with respect to a principal amount of at least one-half of the
available term loan balance. On September 23, 1997, the Company entered into a
five year interest rate swap agreement under which the Company fixed its LIBOR
interest rate at 6.28% on one-half of the scheduled available term loan balance
outstanding during this period.
Note 4. Acquisition and Lease of Railroad Operations
Effective November 1, 1997, the Company's St. Lawrence & Atlantic
Railroad ("SLR") entered into a Lease Agreement and a Service Agreement to lease
and operate all of the track and property, consisting of approximately 11 miles,
owned by the Berlin Mills Railway Company ("BMS") located in Berlin and Gorham,
New Hampshire, and on November 4, 1997 commenced operations. The Lease Agreement
includes an initial lease term of ten years and a five year renewal option. The
Lease Agreement requires SLR to make annual lease payments of $100,000, and
includes an escalation provision based upon a specified railroad inflation
index. SLR acquired two locomotives and miscellaneous supplies from BMS for
$65,000.
6
<PAGE>
In December 1997, SLR entered into an Asset Purchase Agreement to
acquire approximately one mile of track from the New Hampshire and Vermont
Railroad Company ("NHVT") in Groveton, New Hampshire for $280,000. On December
29, 1997 this transaction was consummated and SLR commenced operations on this
section of track on December 30, 1997.
On November 7, 1997, through its newly created wholly-owned subsidiary,
Penn Eastern Rail Lines, Inc. ("PRL"), the Company entered into an Asset
Purchase Agreement to acquire substantially all of the assets and leases of four
railroad operations, eight locomotives, and track equipment from an individual
owner and operator (the "Seller"). On December 30, 1997 this transaction was
consummated and operations commenced on December 31, 1997. The rail operations
consist of seven individual rail lines aggregating approximately 44 miles of
track located in various areas of southeastern Pennsylvania, including two lines
currently owned by the Seller, four lines currently leased from the Pennsylvania
Department of Transportation, and a line currently leased from the owner of an
industrial park. The purchase price of $671,000 consisted of $250,000 in cash at
closing, a $250,000 note payable on January 2, 1998, and 85,000 shares of the
Company's common stock.
The cash and note portion of the PRL acquisition and the purchase of
locomotives from BMS were each funded by a sale-leaseback transaction for the
sale of the respective locomotives aggregating $557,000. The locomotives are
leased for a period of seven years and include a buyout for approximately 35% of
the sales value at the end of the seventh year. These leases have been accounted
for as capital leases. The acquisition of track from NHVT in the amount of
$280,000 was funded under the Company's $2 million working capital facility.
Note 5. Contingent Liabilities
Emons Transportation Group is not currently a party to any legal
proceedings. However, Emons Industries, Inc. ("Industries"), a subsidiary of the
Company, is currently a defendant in 686 product liability actions. In addition,
one of the Company's railroads is in the process of remediating a fuel oil spill
at its locomotive maintenance facility in York, Pennsylvania.
Product Liability Actions
-------------------------
Prior to March 1971, under previous management, Industries (then known
as Amfre-Grant, Inc.) was engaged in the business of distributing (but not
manufacturing) various generic and prescription drugs. Industries sold and
discontinued these business activities in March 1971 and commenced its railcar
leasing and railroad operations in October 1971. One of the drugs which had been
distributed was diethylstilbestrol ("DES"), which was taken by women during
pregnancy to prevent miscarriage.
As of December 31, 1997, Industries was one of numerous defendants
(including many of the largest pharmaceutical manufacturers) in 686 lawsuits in
which the plaintiffs allege that DES caused adenosis, infertility, cancer or
birth defects in the offspring or grandchildren of women who ingested DES during
pregnancy. In these actions, liability is premised on the defendant's
participation in the market for DES, and liability is several and limited to the
defendant's share of the market. Of these lawsuits, 681 were commenced after the
confirmation of Industries' Reorganization Plan in December 1986 (the "Plan"),
while the remaining five lawsuits are claims which will be treated under the
Plan. These actions are currently in various stages of litigation.
Industries has filed a motion in Bankruptcy Court seeking a judgment
declaring that the 681 post-confirmation lawsuits represent claims which should
be asserted against Industries' Chapter 11 estate and are not
post-reorganization liabilities. Counsel has advised the Company that the
Bankruptcy Court should grant Industries' application to classify all of these
cases as
7
<PAGE>
bankruptcy claims. In addition, on February 14, 1995, the Bankruptcy Court
advised Industries that it would sign an order which would stay execution of any
judgment rendered against Industries pending determination of Industries'
application. The order, which was submitted to the Court in March 1995, has not
yet been signed.
Industries has product liability insurance and defense coverage for
nearly all the claims which fall within the policy period 1948 to 1970 up to
varying limits by individual and in the aggregate for each policy year. To date,
Industries has not exhausted insurance coverage in any policy year. During the
period October 1, 1997 through December 31, 1997, 11 new actions were commenced
in which Industries was named as a defendant and 197 lawsuits were settled or
dismissed at no liability to Industries.
Management intends to vigorously defend all of these actions. In the
event that the post-reorganization lawsuits described above are not treated
under the Plan, it is possible that Industries could ultimately have liability
in these actions in excess of its product liability insurance coverage described
above. However, based upon Industries' experience in prior DES litigation,
including the proceedings before the Bankruptcy Court, and its current knowledge
of pending cases, the Company believes that it is unlikely that Industries'
ultimate liability, if any, in excess of insurance coverage and existing
reserves in the pending cases, will be in an amount sufficient to have a
material adverse effect upon the Company's consolidated financial position or
results of operations.
Environmental Liability
-----------------------
During fiscal 1994, the Company's Maryland and Pennsylvania Railroad
("MPA") discovered a diesel fuel oil spill at its locomotive maintenance
facility in York, Pennsylvania, resulting from the fueling of its locomotives.
MPA is currently performing additional testing and is working with the
Pennsylvania Department of Environmental Protection to remediate the
contaminated area. In January 1997, in the next phase of its testing procedures,
MPA discovered free product in some of its monitoring wells. The Company
estimates that the cost to remediate the free product will range from $100,000
to $200,000. The Company has provided sufficient reserves for the anticipated
remediation costs.
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Liquidity and Capital Resources
The Company's primary sources of liquidity include its cash and
accounts receivable, which aggregated $4,258,000 and $3,920,000 at December 31,
1997 and June 30, 1997, respectively, and the balance available under the
Company's $2 million working capital facility. On August 15, 1997, the Company
entered into a Loan and Security Agreement with a new lender which provided a
$7,775,000 seven year term loan and a revolving working capital facility of up
to $2 million. The proceeds of the $7,775,000 term loan were utilized to retire
existing bank indebtedness and fund refinancing costs. The Company intends to
utilize the $2 million working capital facility to help fund the Company's
internal growth activities and acquisition program. As of December 31, 1997, the
Company borrowed $280,000 under the working capital facility and had additional
availability of $870,000 computed in accordance with the facility's eligibility
criteria.
The Company completed two rail acquisitions and entered into a railroad
operating lease transaction in the second quarter of fiscal 1998, as described
below.
In November 1997, the Company's St. Lawrence & Atlantic Railroad
("SLR") entered into a Lease Agreement and a Service Agreement to lease and
operate all of the track and property
8
<PAGE>
owned by the Berlin Mills Railway Company ("BMS") located in Berlin and Gorham,
New Hampshire, and on November 4, 1997 commenced operations. BMS, which is owned
by Crown Paper Co. ("Crown Vantage"), consists of approximately 11 miles of
track, and serves Crown Vantage's paper and pulp mills in Berlin and Gorham. The
Lease Agreement includes an initial lease term of ten years and a five year
renewal option. SLR acquired two locomotives and miscellaneous supplies from BMS
for $65,000.
In December 1997, SLR entered into an Asset Purchase Agreement to
acquire approximately one mile of track from the New Hampshire and Vermont
Railroad Company ("NHVT") in Groveton, New Hampshire for $280,000. On December
29, 1997 this transaction was consummated and SLR commenced operations on this
section of track on December 30, 1997. The one mile of track connects with SLR's
existing rail operations in Groveton, and provides SLR with strategic direct
access to two customers.
In November 1997, through its newly created wholly-owned subsidiary,
Penn Eastern Rail Lines, Inc. ("PRL"), the Company entered into an Asset
Purchase Agreement to acquire substantially all of the assets and leases of four
railroad operations, eight locomotives, and track equipment from an individual
owner and operator (the "Seller"). On December 30, 1997 this transaction was
consummated and operations commenced on December 31, 1997. The rail operations
consist of seven individual rail lines aggregating approximately 44 miles of
track located in various areas of southeastern Pennsylvania, including two lines
currently owned by the Seller, four lines currently leased from the Pennsylvania
Department of Transportation, and a line currently leased from the owner of an
industrial park. The purchase price consisted of $250,000 in cash at closing, a
$250,000 note payable on January 2, 1998, and 85,000 shares of the Company's
common stock.
The cash and note portion of the PRL acquisition and the purchase of
locomotives from BMS were each funded by a sale-leaseback transaction with a
financial institution for the sale of the respective locomotives aggregating
$557,000. The locomotives are leased for a period of seven years and include a
buyout provision for approximately 35% of the sales value at the end of the
seventh year. These leases have been treated as capital leases for accounting
purposes. The acquisition of track from NHVT in the amount of $280,000 was
funded under the Company's $2 million working capital facility.
The Company's cash and cash equivalents increased $816,000 for the six
month period ended December 31, 1997. The net increase includes $1,698,000 of
cash provided by operations, $131,000 of additional net cash provided by
long-term borrowings, a $250,000 note issued in connection with the acquisition
of rail properties, and $574,000 of proceeds from the sale of assets, including
$557,000 of cash received in connection with the sale-leaseback of locomotives.
These increases were partially offset by $905,000 of cash invested in acquired
and leased rail properties, $733,000 of other capital investments, and $206,000
of deferred debt issuance costs.
The Company generated $1,698,000 of cash from operations for the six
month period ended December 31, 1997 as compared to $1,118,000 for the
corresponding period in the prior year. Excluding changes in assets and
liabilities, cash provided by operations increased $42,000 from $1,206,000 for
the six months ended December 31, 1996 to $1,248,000 for the six months ended
December 31, 1997 as a result of improved performance in the current year. Cash
was increased by $450,000 for changes in assets and liabilities in the six month
period ended December 31, 1997, primarily as a result of a reduction in accounts
receivable due to the collection of significant amounts due under government
funded track rehabilitation programs.
The Company invested $733,000 in capital expenditures in addition to
acquired and leased rail properties during the first six months of fiscal 1998,
including $579,000 of investments
9
<PAGE>
in railroad track structures (net of $347,000 of government grants), and
$154,000 of other capital investments. The Company's $926,000 gross investment
in capital track projects for the six months ended December 31, 1997 has
decreased significantly from $2,016,000 of gross investments in the prior year
as the Company's five year track rehabilitation program has been substantially
completed. As of December 31, 1997, the Company had approximately $1,000,000 of
government grants for track rehabilitation projects and approximately $300,000
of government funding under no interest loan programs available for future track
rehabilitation projects.
The Company's net long-term debt obligations, excluding $557,000 of
non-cash capital lease obligations incurred in connection with acquired rail
properties, increased $131,000 during the six month period ended December 31,
1997, including $8,109,000 of additional borrowings offset by $7,978,000 of debt
payments. Additional long-term debt obligations include $7,775,000 of long-term
debt obligations in connection with the Company's debt refinancing in August
1997, $280,000 of working capital loan borrowings in connection with the
acquisition of track from NHVT, and $54,000 of borrowings under government
funded no and low interest track rehabilitation loan programs. Reductions in
long-term debt obligations include the repayment of approximately $7,600,000 of
bank debt in connection with the debt refinancing, and scheduled debt
repayments.
Analysis of Operations for the three months ended December 31, 1997
compared to the three months ended December 31, 1996
Results of Operations
Current year results are impacted by several events which took place
during the first six months of fiscal 1998. First, as described further under
Liquidity and Capital Resources, the Company refinanced its bank borrowings in
August 1997. Second, as also described further under Liquidity and Capital
Resources, the Company completed two rail acquisitions and entered into a rail
lease and service transaction during the second quarter of fiscal 1998. The
acquisitions of NHVT and PRL did not have a significant impact on current year
operations since both of these transactions were completed near the end of
December 1997. The BMS lease, which was completed in early November 1997,
impacted SLR's operating revenues and expenses in the current year. Finally,
current year results are impacted by the renegotiation of the Operating and
Marketing Agreement between SLR and the Canadian National Railway ("CN"), SLR's
primary connecting carrier, which became effective October 1, 1997. The
renegotiated agreement amends the revenue structure for business transacted with
CN, resulting in a reduction of SLR's operating revenues from CN. In return, CN
has provided SLR with additional car hire expense relief, has agreed to forego
interest on the $1.5 million promissory note due from SLR, and has agreed to
forgive repayment of the $1.5 million promissory note over a seven year period.
The renegotiated agreement impacts operating revenues, operating expenses,
interest expense and non-operating income.
The Company generated net income of $430,000 for the three month period
ended December 31, 1997 as compared to net income of $204,000 for the three
month period ended December 31, 1996. Operating revenues decreased $23,000,
while operating expenses and interest expense decreased $24,000 and $48,000,
respectively, from the prior year. Interest and non-operating income increased
$68,000 over the prior year and the provision for income taxes decreased
$109,000 from the prior year.
Revenues
Operating revenues decreased $23,000, or .6%, from $4,094,000 for the
three months ended December 31, 1996 to $4,071,000 for the three month period
ended December 31, 1997.
10
<PAGE>
This net decrease includes $318,000 additional freight and haulage revenues
(excluding intermodal freight) and $114,000 additional switching service fees,
offset by a $134,000 decrease in logistics revenues, a $30,000 decrease in
intermodal freight and handling revenues, and a $291,000 decrease in other
operating revenues.
Freight and haulage revenues increased $318,000, or 11%, consisting of
a 9% increase in the number of carloads handled and a 2% increase in average
revenues per carload. Total traffic handled increased approximately 850 carloads
from 9,200 for the quarter ended December 31, 1996 to 10,050 for the quarter
ended December 31, 1997. The increase includes approximately 550 additional
carloads on the Pennsylvania rail operations and approximately 300 additional
carloads on SLR in New England. The increase in business for the Pennsylvania
rail operations includes approximately 200 additional agricultural carloads and
a variety of less significant increases. The increase in business on SLR
includes 200 additional overhead agricultural carloads and a variety of other
less significant increases in business. Current year traffic on SLR includes
additional business generated by six new customers located on-line over the past
year. The 2% increase in average revenues per carload is primarily attributable
to rate adjustments.
Logistics revenues generated by the Company's operations in York,
Pennsylvania, decreased $134,000, or 43.5%, for the three month period ended
December 31, 1997 as compared to the corresponding period in the prior year. The
decrease consists of a $59,000 decrease in transfer and handling revenues, a
$29,000 decrease in storage revenues, and a $46,000 decrease in truck brokering
revenues. The decrease in transfer and handling revenues includes a 30 carload
decrease in the number of railcars handled, or 7%, and a 28% decrease in average
handling revenues per railcar. The decrease in both volume and average revenues
per car is largely attributable to the loss of business for a building products
distributor which relocated its operations to its own facility on one of the
Company's Pennsylvania rail lines in March 1997. This customer, which accounted
for approximately 135 railcars in the second quarter of the prior year, intends
to utilize the new facility to expand into other building products and accounted
for 220 rail direct carloads in the second quarter of the current year. The
decrease in logistics business for this customer was offset by 165 additional
agricultural bulk transfer carloads. The decreases in storage and truck
brokering revenues is primarily attributable to a decline in paper business and
the Company's decision to exit certain warehouse operations and direct this
business to an independent warehouse operator located on-line.
Intermodal freight and handling revenues generated by the Company's
rail intermodal terminal in Auburn, Maine for the quarter ended December 31,
1997 decreased $30,000 as compared to the corresponding quarter in the prior
year. Intermodal volume decreased approximately 450 trailers and containers, or
13%, from 3,500 trailers and containers for the second quarter of the prior year
to 3,050 trailers and containers for the second quarter of the current year. The
decrease in intermodal volume is attributable to competition from a new
intermodal terminal that opened nearby in the past year, and the conversion of
certain intermodal business to rail boxcars.
SLR switching service fees for operating BMS aggregated $114,000 for
the period from commencement of operations through December 31, 1997.
Other operating revenues decreased $291,000 from the prior year
primarily due to a reduction in fees from CN in connection with the
renegotiation of the Operating and Marketing Agreement between SLR and CN, and a
reduction in easement income. The Company received a one time fee for a crossing
agreement of $85,000 in the prior year.
Non-operating income totaled $66,000 in the quarter ended December 31,
1997 as compared to no non-operating income in the prior year. The current year
amount includes
11
<PAGE>
$40,000 for the non-cash amortization of the $1.5 million promissory note due CN
in connection with the renegotiation of the Operating and Marketing Agreement
between SLR and CN, and the remainder primarily to the gain on sale of
unutilized equipment.
Expenses
Operating expenses decreased $24,000, or .7%, from $3,532,000 for the
three month period ended December 31, 1996 to $3,508,000 for the three month
period ended December 31, 1997. The decrease consists of a $49,000 reduction in
cost of operations partially offset by $25,000 additional selling and
administrative expenses.
Cost of operations decreased $49,000, or 1.8%, from $2,771,000 for the
three month period ended December 31, 1996 to $2,722,000 for the corresponding
period in the current year. This decrease is primarily attributable to a
decrease in Logistics operating expenses of $82,000, partially offset by
additional provisions under profit sharing and incentive compensation
arrangements. Railroad and intermodal operating expenses did not vary
significantly from the prior year.
Railroad operating expenses increased slightly for the quarter ended
December 31, 1997 as compared to the prior year, including a $44,000 increase in
operating expenses on SLR, offset by a decrease in operating expenses on
Pennsylvania operations. The net increase consists of a variety of increases and
decreases. Maintenance of way expense increased $70,000 over the prior year,
primarily attributable to SLR, as a result of a reduced emphasis on capital
track work, and additional expenses on SLR to maintain the track leased from
BMS. Locomotive maintenance expenses increased to a lesser extent, primarily
attributable to SLR, as a result of the increase in business levels. These
increases were offset by a decrease in transportation expenses of over $100,000.
Excluding car hire expense, SLR transportation expenses increased as a result of
the increase in traffic levels and additional costs associated with operating
the BMS. Offsetting these increases, car hire expense on SLR decreased over
$150,000 in conjunction with the renegotiation of the CN Operating and Marketing
Agreement. Transportation expenses on the Pennsylvania rail operations decreased
despite the increase in traffic levels as a result of cost reduction programs
instituted in the third quarter of the prior year. Locomotive fuel costs also
decreased in the current year despite the increase in business levels as a
result of a decrease in fuel prices from higher levels in the prior year.
Logistics operating expenses decreased $82,000 from the prior year,
including reductions in brokered freight expense and property rent as a result
of the Company's decision to exit certain warehouse operations, and a reduction
in labor and benefits as a result of the 7% reduction in the number of railcars
handled and the change in the mix of labor required to service current business.
Rail intermodal operating expenses decreased slightly as a result of
the 13% decrease in volume from the prior year.
Selling and administrative expenses increased $25,000, or 3.3%, from
$761,000 for the quarter ended December 31, 1996 to $786,000 for the quarter
ended December 31, 1997. This increase includes additional wages and benefits,
additional provisions under profit sharing and incentive compensation
arrangements, and additional directors fees associated with the addition of two
outside directors. These increases were partially offset by reduced wages and
benefits, and other expenses associated with the reduction of two management
personnel during the first quarter of fiscal 1998.
Interest expense decreased $48,000 for the three month period ended
December 31, 1997 as compared to the prior year. Interest forgiven on the $1.5
million CN promissory note,
12
<PAGE>
lower interest expense due to more favorable interest rates under the August
1997 bank refinancing, and the mix of debt, which includes a greater amount of
no and low interest government track work loans in the current year as compared
to the prior year, account for this decrease.
The provision for income taxes decreased $109,000, from $131,000 for
the quarter ended December 31, 1996 to $22,000 for the quarter ended December
31, 1997. This decrease is attributable to tax planning strategies implemented
in the current year, and a reduction in deferred federal and state tax
provisions in the current year.
Analysis of Operations for the six months ended December 31, 1997
compared to the six months ended December 31, 1996
Results of Operations
Current year results are impacted by several events which took place
during the first six months of fiscal 1998. First, as described further under
Liquidity and Capital Resources, the Company refinanced its bank borrowings in
August 1997. Second, as also described further under Liquidity and Capital
Resources, the Company completed two rail acquisitions and entered into a rail
lease and service transaction during the second quarter of fiscal 1998. The
acquisitions of NHVT and PRL did not have a significant impact on current year
operations since both of these transactions were completed near the end of
December 1997. The BMS lease, which was completed in early November 1997,
impacted SLR's operating revenues and expenses in the current year. Finally,
current year results are impacted by the renegotiation of the Operating and
Marketing Agreement between SLR and the Canadian National Railway ("CN"), SLR's
primary connecting carrier, which became effective October 1, 1997. The
renegotiated agreement amends the revenue structure for business transacted with
CN, resulting in a reduction of SLR's operating revenues from CN. In return, CN
has provided SLR with additional car hire expense relief, has agreed to forego
interest on the $1.5 million promissory note due from SLR, and has agreed to
forgive repayment of the $1.5 million promissory note over a seven year period.
The renegotiated agreement impacts operating revenues, operating expenses,
interest expense and non-operating income.
The Company generated net income of $651,000 for the six month period
ended December 31, 1997 as compared to net income of $380,000 for the six month
period ended December 31, 1996. Results of operations for the current year
include a $108,000 charge incurred in connection with the refinancing of the
Company's bank debt in August 1997, which has been included in interest expense.
Excluding this charge, income before income taxes increased $178,000 from
$624,000 for the six month period ended December 31, 1996 to $802,000 for the
corresponding period in the current year. Operating revenues increased $150,000
and interest and non-operating income increased $72,000, while operating
expenses and interest expense increased $103,000 and $49,000, respectively, over
the prior year. The provision for income taxes decreased $201,000 from the prior
year.
Revenues
Operating revenues increased $150,000, or 2%, from $8,024,000 for the
six months ended December 31, 1996 to $8,174,000 for the six month period ended
December 31, 1997. This net increase includes $571,000 additional freight and
haulage revenues (excluding intermodal freight) and $114,000 additional
switching service fees, partially offset by a $227,000 decrease in logistics
revenues, a $9,000 decrease in intermodal freight and handling revenues, and a
$299,000 decrease in other operating revenues.
13
<PAGE>
Freight and haulage revenues increased $571,000, or 10%, consisting of
a 2% increase in the number of carloads handled and an 8% increase in average
revenues per carload. Total traffic handled increased approximately 400 carloads
from 18,900 for the six months ended December 31, 1996 to 19,300 for the six
months ended December 31, 1997. The net increase includes a reduction of
approximately 600 carloads on the Pennsylvania rail operations, offset by
approximately 1,000 additional carloads on SLR. The decrease in business for the
Pennsylvania rail operations includes approximately 500 fewer low rated bridge
carloads and a variety of less significant increases and decreases in other
business. The increase in business on SLR includes 200 additional carloads of
building products to an on-line customer as a result of the expansion of its
operations, 250 additional overhead agricultural carloads, 175 additional salt
carloads to an on-line customer who was awarded a key supply contract in the
current year, and a variety of other less significant increases in business.
Current year traffic volumes on SLR include additional business generated by six
new customers located on-line over the past year. The 8% increase in average
revenues per carload is attributable to the mix of business, including a
significant decrease in low rated bridge traffic for the Company's Pennsylvania
rail operations and, to a lesser extent, rate adjustments.
Logistics revenues generated by the Company's operations in York,
Pennsylvania, decreased $227,000, or 35%, for the six month period ended
December 31, 1997 as compared to the first six months of the prior year. The
decrease consists of a $115,000 decrease in transfer and handling revenues, a
$77,000 decrease in storage revenues, and a $35,000 decrease in truck brokering
revenues. The decrease in transfer and handling revenues includes a 65 carload
decrease in the number of railcars handled, or 7%, and a 24% decrease in average
handling revenues per railcar. The decrease in both volume and average revenues
per car is largely attributable to the loss of business for a building products
distributor which relocated its operations to its own facility on one of the
Company's Pennsylvania rail lines in March 1997. This customer, which accounted
for approximately 285 railcars in the prior year, intends to utilize the new
facility to expand into other building products and accounted for 435 rail
direct carloads in the current year. The decrease in logistics business from
this customer was partially offset by 270 additional agricultural bulk transfer
carloads. The decreases in storage and truck brokering revenues is primarily
attributable to a decline in paper business and the Company's decision in the
second quarter of fiscal 1998 to exit certain warehouse operations and direct
this business to an independent warehouse operator located on-line.
Intermodal freight and handling revenues generated by the Company's
rail intermodal terminal in Auburn, Maine for the six months ended December 31,
1997 decreased $9,000 as compared to the corresponding period in the prior year.
Intermodal volume decreased approximately 225 trailers and containers, or 3%,
from 6,850 trailers and containers for the first six months of the prior year to
6,625 trailers and containers for the first six months of the current year. The
decrease in intermodal volume is attributable to competition from a new
intermodal terminal that opened nearby in the past year, and the conversion of
certain intermodal business to rail boxcars.
SLR switching service fees for operating BMS aggregated $114,000 for
the period from commencement of operations through December 31, 1997.
Other operating revenues decreased $299,000 from the prior year
primarily due to a reduction in fees from CN in connection with the
renegotiation of the Operating and Marketing Agreement between SLR and CN, and a
reduction in easement income. The Company received a one time fee for a crossing
agreement of $85,000 in the prior year.
Non-operating income totaled $66,000 for the first six months of fiscal
1998 as compared to no non-operating income in the prior year. The current year
amount includes $40,000 for the non-cash amortization of the $1.5 million
promissory note due CN in connection with the
14
<PAGE>
renegotiation of the Operating and Marketing Agreement between SLR and CN, and
the remainder primarily to the gain on sale of unutilized equipment.
Expenses
Operating expenses increased $103,000, or 1.5%, from $6,943,000 for the
six month period ended December 31, 1996 to $7,046,000 for the six month period
ended December 31, 1997. The increase consists of $49,000 additional cost of
operations and $54,000 additional selling and administrative expenses.
Cost of operations increased $49,000, or 1%, from $5,447,000 for the
six month period ended December 31, 1996 to $5,496,000 for the corresponding
period in the current year. This increase is primarily attributable to an
increase in railroad operating expenses of $107,000 and additional provisions
under profit sharing and incentive compensation arrangements, partially offset
by a decrease in logistics operating expenses of $118,000.
Intermodal operating expenses increased slightly over the prior year.
Railroad operating expenses increased $107,000 for the six months ended
December 31, 1997 as compared to the prior year, including a $206,000 increase
in operating expenses on SLR partially offset by a decrease in operating
expenses on Pennsylvania operations. The net increase consists of a variety of
increases and decreases. Maintenance of way expense increased $67,000 over the
prior year, primarily attributable to SLR, as a result of a reduced emphasis on
capital track work, and additional expenses on SLR to maintain the track leased
from BMS. Locomotive maintenance expenses increased $64,000, primarily
attributable to SLR, as a result of the increase in business levels. These
increases were partially offset by a decrease in transportation expenses. SLR
transportation expenses increased as a result of the increase in traffic levels
and additional costs associated with operating the BMS, despite a decrease in
car hire expense of over $130,000 in conjunction with the renegotiation of the
CN Operating and Marketing Agreement. Offsetting the increase on SLR,
transportation expenses on the Pennsylvania rail operations decreased despite
the increase in traffic levels as a result of cost reduction programs instituted
in the third quarter of the prior year.
Logistics operating expenses decreased $118,000 from the prior year,
including reductions in brokered freight expense and property rent as a result
of a decline in paper carloads and the Company's decision to exit certain
warehouse operations, and a reduction in labor and benefits as a result of the
7% reduction in the number of railcars handled and the change in the mix of
labor required to service current business.
Rail intermodal operating expenses increased slightly despite a 3%
decrease in volume due to additional costs incurred to maintain the intermodal
facility.
Selling and administrative expenses increased $54,000, or 3.5%, from
$1,496,000 for the six months ended December 31, 1996 to $1,550,000 for the six
months ended December 31, 1997. This increase includes additional wages and
benefits, including a provision for severance, additional provisions under
profit sharing and incentive compensation arrangements, and additional directors
fees associated with the addition of two outside directors. These increases were
partially offset by reduced wages and benefits, and other expenses associated
with the reduction of two management personnel during the first quarter of
fiscal 1998.
Interest expense increased $49,000 for the six month period ended
December 31, 1997 as compared to the prior year. The current year includes a
$108,000 charge incurred in connection with the refinancing of the Company's
bank debt in August 1997. This increase was partially offset by interest
forgiven on the $1.5 million CN promissory note, more favorable interest rates
under the August 1997 bank refinancing, and lower interest expense due to the
mix of debt,
15
<PAGE>
which includes a greater amount of no and low interest government track work
loans in the current year as compared to the prior year.
The provision for income taxes decreased $201,000, from $244,000 for
the six months ended December 31, 1996 to $43,000 for the six months ended
December 31, 1997. This decrease is attributable to tax planning strategies
implemented in the current year, and a reduction in deferred federal and state
tax provisions in the current year.
PART II.
Item 1. Legal Proceedings
As previously reported in Item 3 of the Emons Transportation Group,
Inc. Annual Report on Form 10-K for the fiscal year ended June 30, 1997, in
which reference is hereby made, Emons Transportation Group, Inc. is not
currently a party to any legal proceedings. However, Emons Industries, Inc. is
currently a defendant in approximately 686 product liability actions. See Note 5
"Contingent Liabilities" to the Notes to Consolidated Financial Statements.
Item 3. Default Upon Senior Securities
On June 19, 1997 and November 20, 1997, the Board of Directors voted to
omit the regular semi-annual dividend of $0.07 per share on its $0.14 Cumulative
Convertible Preferred Stock which would have been payable on July 1, 1997
January 2, 1998, respectively. Dividends in arrears as of December 31, 1997
aggregated $1,616,056.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of stockholders of Emons Transportation Group,
Inc. held on November 20, 1997, the stockholders:
(a) elected Messrs. Michael J. Blake, Robert Grossman, Robert J.
Smallacombe, Alfred P. Smith, Dean H. Wise and Scott F. Ziegler,
and Ms. Kimberly A. Madigan as directors of the Company to serve
in such capacity until their successors are elected and qualified,
and
(b) ratified the appointment of Arthur Andersen LLP as independent
accountants to audit the financial statements of the Company for
the year ended June 30, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) An index to exhibits appears following the signature page to this
report.
(b) No reports on Form 8-K were filed during the three month period
ended December 31, 1997.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMONS TRANSPORTATION GROUP, INC.
Date: February 12, 1998 By: /s/Scott F. Ziegler
----------------- -------------------
Scott F. Ziegler
Vice President-Finance and
Controller (signing on
behalf of the registrant as
both its duly authorized
officer and its principal
accounting officer)
17
<PAGE>
EXHIBITS
The following exhibits are filed as a part of this report. For
convenience of reference, exhibits are listed according to numbers assigned in
the Exhibit Table of Item 601 of Regulation S-K under the Securities Exchange
Act of 1934.
<TABLE>
<CAPTION>
Page in
Exhibit Sequentially
Number Exhibit Numbered Copy
<S> <C> <C>
3 (a) Certificate of Incorporation for Emons Holdings, Inc. dated December 19, 1986
(incorporated by reference from Emons Holdings, Inc. Report on Form 10-K for the
year ended June 30, 1987, Exhibit Number 3 (a)) ---
3 (b) Certificate of Amendment of Certificate of Incorporation for
Emons Holdings, Inc. dated September 26, 1989 (incorporated by
reference from Emons Holdings, Inc. Report on Form 10-Q for the
quarter ended September 30, 1989, Exhibit Number 3 (b)) ---
3 (c) Amended and Restated By-Laws for Emons Holdings, Inc. (incorporated by reference
from Emons Holdings, Inc. Report on Form 10-Q for the quarter ended September 30,
1989, Exhibit Number 3 (c)) ---
3 (d) Certificate of Amendment of Certificate of Incorporation for Emons Holdings, Inc.
dated November 18, 1993 (incorporated by reference from Emons Transportation
Group, Inc. Report on Form 10-Q for the quarter ended December 31, 1993, Exhibit
Number 3 (d)) ---
10 (a) Loan and Security Agreement dated August 15, 1997 among Emons Transportation Group,
Inc., Emons Industries, Inc., Emons Finance Corp., Maryland and Pennsylvania
Railroad, Emons Logistics Services, Inc., Maine Intermodal Transportation, Inc.,
Emons Railroad Group, Inc., Yorkrail, Inc., and St. Lawrence & Atlantic Railroad, as
the Borrowers, and LaSalle National Bank, as the Lender (incorporated by reference
from Emons Transportation Group, Inc. Report on Form 10-K for the year ended June
30, 1997, Exhibit Number 10 (f)) ---
10 (b) Lease Agreement dated as of November 1, 1997 between St. Lawrence
& Atlantic Railroad Company and Berlin Mills Railway, Inc.
(incorporated by reference from Emons Transportation Group, Inc.
Report on Form 10-Q for the quarter ended September 30, 1997, Exhibit
Number 10 (b)) ---
10 (c) Asset Purchase Agreement between John C. Nolan, Lancaster Northern Railway, Inc.,
Chester Valley Railway, Inc., East Penn Railways, Inc., and Bristol Industrial
Terminal Railway, Inc. and Penn Eastern Rail Lines, Inc. dated November 7, 1997 ---
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Page in
Exhibit Sequentially
Number Exhibit Numbered Copy
<S> <C> <C>
10 (d) Asset Purchase Agreement between New Hampshire and Vermont Railroad Company, Inc.
and St. Lawrence & Atlantic Railroad Company dated December 12, 1997 ---
27 (a) Financial Data Schedules ---
</TABLE>
19
<PAGE>
EXHIBIT 10(C)
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
Between
JOHN C. NOLAN,
LANCASTER NORTHERN RAILWAY, INC.,
CHESTER VALLEY RAILWAY, INC.,
EAST PENN RAILWAYS, INC.
AND
BRISTOL INDUSTRIAL TERMINAL RAILWAY, INC.
and
PENN EASTERN RAIL LINES, INC.
------------------------------------------------------------
Dated
November 7, 1997
------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ASSET PURCHASE AGREEMENT
PENN EASTERN RAIL LINES, INC., a Delaware corporation ("Purchaser") and
JOHN C. NOLAN, an individual, LANCASTER NORTHERN RAILWAY, INC., a Delaware
corporation, CHESTER VALLEY RAILWAY, INC., a Delaware corporation, EAST PENN
RAILWAYS, INC., a Delaware corporation, and BRISTOL INDUSTRIAL TERMINAL RAILWAY,
INC., a Delaware corporation (jointly and severally the "Seller") agree as
follows:
1. DEFINITIONS
1.1. The following terms when used with initial capitalization in this
Agreement, whether in the singular or the plural, have the meanings
ascribed to them below:
"Agreement" means this Asset Purchase Agreement, including its Appendices
and Exhibits.
"Assets" means the assets of Seller identified in Appendix A to this
Agreement.
"Cash Portion" has the meaning given to it in Section 4.1 of this
-----------
Agreement.
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. (S)9601 et seq.
"Closing" has the meaning given to it in Section 11.1 of this Agreement.
------------
"Closing Date" has the meaning given to it in Section 11.2 of this
------------
Agreement.
"Contracts" means contracts, leases, commitments, agreements and
arrangements.
"Board" means the Surface Transportation Board established under 49 U.S.C.
(S)10101 et seq. or any successor agency.
"Emons" means Emons Transportation Group, Inc.
"Environmental Law" means any law, judgment, decree, order, license, rule
or regulation pertaining to environmental matters, including without limitation,
those arising under the Resource Conservation and Recovery Act of 1976, as
amended (42 U.S.C. (S)6901 et seq.), CERCLA, the Superfund Amendments and
Reauthorization Act of 1986, as amended (Pub. L. 99-499, Pub. L. 99-563, Pub. L.
100-202 and Pub. L. 101-144), the Clean Water Act, as amended (33 U.S.C. (S)1251
et seq.), the Clean Air Act, as amended (42 U.S.C. (S)7401 et seq.), the Toxic
Substances Control Act, as amended (15 U.S.C. (S)2601 et seq.), the Safe
Drinking Water Act, as amended (42 U.S.C. (S)300f et seq.), the Emergency
Planning and Community Right-to-Know Act of 1986, as amended (42 U.S.C. (S)11001
et seq.) and any other federal, state or local statute, regulation, ordinance,
order or decree pertaining to the environment.
"Hazardous Substances" means any "hazardous waste" as defined by 42 U.S.C.
(S)6903(5), any "medical waste" as defined by 42 U.S.C. (S)6903(40), any
"hazardous substance" as defined by 42 U.S.C. (S)9601(14), any "pollutant or
contaminant" as defined by 42 U.S.C. (S)9601(33), any "hazardous chemical"
pursuant to 29 CFR (S)1910.1200(c), any substance designated pursuant to 40 CFR
Part 302, any
<PAGE>
"extremely hazardous substance" pursuant to 40 CFR 355, any "toxic chemical"
pursuant to 40 CFR Part 372, and any toxic substance, oil, petroleum, hazardous
material or other chemical or substance deemed hazardous by an Environmental
Law.
"Inventory" means inventory, fuel, supplies and other materials relating to
or acquired or used for locomotive or car repair, trackage, signal, structure
and building maintenance, or otherwise in connection with the operation, use or
enjoyment of the Rail Lines or the other Assets.
"Inventory Accounts" means the accounts on Seller's balance sheets where
Inventory is carried, which accounts shall be kept in accordance with generally
accepted accounting principles.
"Knowledge", when used in this Agreement to modify a representation,
warranty or other statement of a party, means that the facts or situations
described in the representation, warranty or other statement as being to the
knowledge of such party are believed to be true and correct by the president,
each vice president (including senior vice presidents, executive vice
presidents, and vice presidents with other similar designations), and each
officer who is principally responsible for the subject matter involved, after
suitable investigation.
"Penndot" means the Department of Transportation of the Commonwealth of
Pennsylvania.
"Permitted Encumbrances" means any
1.2. liens for taxes, assessments, levies, fees and other government
charges not yet due or payable or which, if due and unpaid, are being
contested in good faith and by appropriate proceedings,
1.3. mechanics' and materialmen's liens and similar charges incurred in the
ordinary course of Seller's business which individually or in the
aggregate do not materially interfere with railroad operations on the
Rail Lines,
(a) utility easements, licenses or permits located on or crossing any
portion of the Assets that do not materially interfere with
railroad operations on the Rail Lines,
(b) road crossing agreements with governmental authorities or
private parties that do not materially interfere with railroad
operations on the Rail Lines,
(c) leases, easements, trackage rights agreements and tenancy
agreements existing as of the date of this Agreement which are
assumed by Purchaser in accordance with this Agreement,
(d) rights of reverter which have not been violated and will not be
violated as long as the affected real property is used for
railroad purposes,
(e) encumbrances specifically agreed to by Purchaser in a separate
writing delivered to the Seller,
(f) matters customarily excepted by title companies in their
commitments for title insurance or title policies as "standard
exceptions",
2
<PAGE>
(g) rights reserved to or vested in any governmental authority with
respect to the Assets or their regulation, and
(h) acts done by, through or under Purchaser, its employees, agents
and contractors.
"Promissory Note" means the Promissory Note described in Section 4.4(a).
--------------
"Purchase Price" has the meaning given to it in Section 4.1 of this
-----------
Agreement.
"Purchaser" means Penn Eastern Rail Lines, Inc., a Delaware corporation.
"Rail Lines" means the lines of railroad included in the Assets which are
owned or operated by Seller.
"Seller" means, collectively or individually, as the context requires or
permits, John C. Nolan, an individual, Lancaster Northern Railway, Inc., a
Delaware corporation, Chester Valley Railway, Inc., a Delaware corporation, East
Penn Railways, Inc., a Delaware corporation, and Bristol Industrial Terminal
Railway, Inc., a Delaware corporation.
"Shares" has the meaning given to it in Section 4.1.
-----------
"Stock Portion" has the meaning given to it in Section 4.1.
-----------
2. PURCHASE AND SALE OF ASSETS; ASSIGNMENT OF CONTRACTS
2.1. General. Under the terms and subject to the conditions contained in
this Agreement, Seller agrees to sell and transfer to Purchaser, and
Purchaser agrees to purchase, on the Closing Date, all of the Assets.
2.2. Assignment Of Contracts. Contemporaneous with the transfer of the
Assets to Purchaser, each Seller agrees to assign and set-over to
Purchaser all of such Seller's rights and interests under the
Contracts listed on Appendix B hereto.
2.3. Grant Of Option. For the period from the Closing Date through
December 31, 1997, Seller grants to Purchaser the right to acquire,
for One ($1.00) Dollar, Seller's interest in that certain Lease
Agreement Between Southeastern Pennsylvania Transportation Authority
and East Penn Railways, Inc. to Operate Over The Bethlehem Branch
Between Telford, Montgomery County, and Quakertown, Bucks County,
Pennsylvania, dated as of October __, 1997 (the "SEPTA Lease").
Purchaser's exercise of this option must be made by written notice in
accordance with Section 17.12 on or before December 31, 1997.
------- -----
2.4. Pending Transactions and Negotiations. As additional consideration,
Seller agrees to inform and apprise Purchaser of all pending
negotiations, proposals, discussions regarding the purchase, lease or
operation of additional rail lines involving Seller, to introduce
Purchaser to third parties involved in any such pending negotiations,
proposals, discussions, and to make its best efforts to ensure that
such pending negotiations, proposals, discussions accrue to the
benefit of the Purchaser.
3
<PAGE>
3. EXCLUSION OF ASSETS
3.1. Contracts. The Assets do not include any rights under Contracts not
specifically assumed by Purchaser under Section 2.2 of this Agreement
------- ---
and all records of Seller relating to such Contracts.
3.2. Current Assets. The Assets do not include any accounts receivable,
cash on hand or deposit and cash equivalents, and other current assets
of the Seller, except for the Inventory, Contracts and intangible
assets specifically identified in Appendix A.
3.3. Corporate Records. The Assets do not include general ledgers, minute
books, tax returns and similar records required for the Seller's
corporate, partnership and tax purposes.
3.4. Claims and Litigation. The Assets do not include rights under
claims and litigation or settlements of such claims and litigation
by or against Seller.
4. PURCHASE PRICE
4.1. Amount of Purchase Price. The purchase price ("Purchase Price") for
the Assets shall be determined and paid as follows:
(a) Five Hundred Thousand Dollars ($500,000) to be paid to Seller
in cash (the "Cash Portion"), and
(b) The balance of the Purchase Price shall be paid to Seller in
common stock (the "Stock Portion") of Emons, in the amount of
Eighty Five Thousand (85,000) shares. The shares of common stock
comprising the stock portion are hereinafter referred to as the
"Shares."
4.2. Securities Laws Matters. Sellers understand that the Shares will not
be registered under the Securities Act of 1933, as amended (the
"Act"), on the ground that the securities are being issued and sold in
a transaction not involving any public offering and that consequently
the transaction is exempt from registration under the Act by virtue of
the provisions of (S) 4(2) of the Act; nor are the Shares to be
registered under Pennsylvania or other state securities laws. Sellers
understand that the Company's reliance upon these exemptions is
predicated in part on the representations of the Sellers contained in
Section 9.1 hereof.
-----------
4.3. Adjustment of Purchase Price. The Purchase Price is subject to
adjustment in accordance with Sections 5 and 6 below. Any such
-------- ----- -
adjustment made to the Purchase Price shall be deducted from the Cash
Portion.
4.4. Payment of Purchase Price.
(a) The Cash Portion, as adjusted, shall be paid by wire transfer of
immediately available funds to one or more bank accounts
designated by Seller or, at the Seller's sole election, by one or
more cashier's checks. One-half of the Cash Portion shall be paid
at the Closing and the other half will be paid on January 2, 1998.
Purchaser shall give Seller a Promissory Note substantially in the
form of
4
<PAGE>
Appendix F, covering the half of the Cash Portion to be paid on
January 2, 1998 (the "Promissory Note").
(b) The Stock Portion will be paid as soon as reasonably practicable
following the Closing Date, but in no event more than twenty (20)
days following the Closing Date. At the Closing Purchaser will
deliver or cause Emons to deliver instructions to its stock
transfer agent directing such transfer agent to deliver
certificates for the Shares.
4.5. Allocation of Purchase Price. The Purchase Price shall be allocated to
the Assets as set forth on Appendix C. The Purchase Price shall be
paid to the Seller in accordance with instructions given to Purchaser
by the Seller. Purchaser shall have no responsibility to the Seller
for the application of the Purchase Price paid pursuant to
instructions given pursuant to this Section.
5. CHANGES IN ASSETS
5.1. Loss of and Damage to Assets. If between the date of this Agreement
and the Closing Date, Assets with a fair market value in excess of
$10,000 in the aggregate are sold, lost, destroyed or condemned, or
suffer any material damage and are not replaced or repaired prior to
the Closing Date, then, at the option of Purchaser, either:
(a) the Cash Purchase Price shall be reduced by the excess of:
1. the fair market value of the Assets immediately prior to the
sale, loss, destruction, condemnation or damage, over
2. the salvage value, if any, of the Assets immediately
following the sale, loss, destruction, condemnation or
damage,
(b) no reduction to the Cash Purchase Price shall be made, and the
Seller shall, on the Closing Date, assign to Purchaser all sale,
insurance or condemnation proceeds payable to the Seller on
account of the loss, destruction, condemnation or damage pursuant
to an assignment reasonably satisfactory to Purchaser and pay to
Purchaser that portion, if any, of any deductible amount under
any insurance applicable to the claim for loss, destruction or
damage; or
(c) the Agreement and the consummation of the transactions
contemplated by this Agreement shall be terminated.
6. TAX ALLOCATION, LEASE INCOME
6.1. Proration of Taxes. The Cash Purchase Price shall be adjusted for
current real and personal property taxes affecting the Assets and due
and payable in calendar year 1997, which shall be prorated over the
calendar year by Seller and Purchaser. If the tax bill for the 1997
calendar year or any prior year has not been received at the Closing
Date and the tax amount cannot otherwise be definitely ascertained,
allocations shall be made on the basis of the prior year's taxes. Any
refund of such taxes applicable to the period prior to Closing shall
be the property of and sent to Seller, and any refunds applicable to
the period after Closing shall be the property of and sent to
Purchaser.
5
<PAGE>
6.2. Lease Rentals and License Income. Lease rentals and license income
(which is not already by its terms calculated on a per diem basis)
shall be prorated to the Closing Date and the amount due Purchaser, if
any, paid within 30 days after Closing.
6.3. Labor Protection. Both parties contemplate that transactions
contemplated by this Agreement will not involve the imposition of
labor protective conditions. If labor protective conditions are
imposed the cost of such conditions will be borne by the Seller.
7. ASSUMPTION OF LIABILITIES AND OBLIGATIONS
7.1. Liabilities to be Assumed. As of the Closing, Purchaser agrees to
assume, discharge and pay in accordance with their respective terms
and to become responsible for the liabilities and obligations of the
Seller under all Contracts set forth on Appendix B, to the extent
those liabilities and obligations accrue after the Closing.
7.2. Liabilities not to be Assumed. Except as expressly provided
elsewhere in this Agreement, Purchaser shall not be obligated to
assume any liability or obligation whatsoever, including but not
limited to, the following:
(a) any litigation, arbitration, claim or similar liability of any
type with respect to the Assets or Seller's ownership thereof,
which is based on or arises out of an event or circumstance
occurring prior to the Closing;
(b) obligations under any plan to which the Seller contributes
pursuant to the applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, or under any other
employee benefit plan, pension plan or similar plan; and
(c) all claims against or obligations of Seller arising out of or in
connection with any labor agreement or arrangement.
7.3. Insurance. The provisions of this Section 7 shall not be construed to
---------
constitute the assumption of any liabilities or obligations in a
manner which would avoid the applicability of any insurance policy
with respect to any event or circumstance arising prior to the
Closing.
7.4. No Third Party Rights. This Section 7 is not intended to create any
---------
rights in favor of any person other than Purchaser and Seller.
8. ADMINISTRATIVE TRANSITION
8.1. Inventory of Loaded Cars.
(a) Seller will prepare and make available to Purchaser an inventory
of all loaded cars on the Rail Lines as of 11:59 P.M., Closing
Date, so that revenue resulting from shipments over the Rail
Lines can be identified and properly distributed between Seller
and Purchaser. The inventory will show separately:
1. Loaded cars at the interchange points or on sidings, which
have not moved in linehaul service on the Rail Lines as of
11:59 P.M., Closing Date.
6
<PAGE>
2. Loaded cars at the interchange points or on sidings for which
linehaul service on the Rail Lines has been completed as of
11:59 P.M., Closing Date.
3. Loaded cars enroute on the Rail Lines, in a train consist or
at an intermediate point on the Rail Lines, as of 11:59 P.M.,
Closing Date.
8.2. Linehaul Revenue.
(a) For inbound cars located at an interchange point at 11:59 P.M.,
Closing Date, and no linehaul service over the Rail Lines has
been performed, Purchaser shall be entitled to 100 percent of the
revenue for movement of the cars over the Rail Lines.
(b) For outbound cars located at an interchange point at 11:59 P.M.,
Closing Date, and linehaul service on the Rail Lines has been
completed, Seller shall be entitled to 100 percent of the revenue
for movement of the cars over the Rail Lines.
(c) For inbound or outbound cars located on sidings or enroute on the
Rail Lines at 11:59 P.M., Closing Date, Purchaser and Seller
shall each be entitled to 1/2 of the revenue attributable to
movement over the Rail Lines.
8.3. Miscellaneous Revenue Other Than Demurrage. Revenue from miscellaneous
charges or switching bills for service provided by Seller up to and
including Closing Date will be retained by Seller. Revenue from
miscellaneous charges or switching bills for service provided by
Purchaser after Closing Date will be retained by Purchaser.
8.4. Demuurage Revenue. Seller will furnish Purchaser with detailed
placement and other data necessary to compute demurrage charges for
all cars subject to actual or constructive placement on the Closing
Date, and Purchaser shall bill for demurrage accrued on all such cars.
Demurrage charges accrued up to 11:59 P.M. of the Closing Date shall
be paid to Seller by Purchaser when customer is billed.
8.5. Switching Charges Assessed by Another Railroad. Charges for any
switching performed by another railroad on behalf of the owner of the
Rail Lines pursuant to agreement or tariff, up to and including
Closing Date, will be paid by Seller. Such charges for switching
performed after Closing Date will be paid by Purchaser. Such switching
charges shall not be allocated to a revenue movement.
8.6. Car Accounting. An inventory of loaded and empty equipment on the Rail
Lines as of 11:59 P.M., Closing Date, will be taken by Seller. For
purposes of determining responsibility for car hire and car mileage
payments, Seller shall perform a paper interchange of all such
equipment to Purchaser effective as of 11:59 P.M., Closing Date. Car
mileage payments and the mileage portion of car hire shall be
calculated based on the actual location of the car as of 11:59 P.M.,
Closing Date. Seller will be responsible for car hire and mileage
payments accrued prior to and on the Closing Date. Purchaser will be
responsible for car hire and mileage payments after Closing Date.
Unless provided otherwise by an agreement signed by the parties or in
an applicable tariff, Purchaser shall be entitled to car hire reclaim
from Seller.
7
<PAGE>
8.7. Billing and Collection. In the event Purchaser or Seller erroneously
receives payment for billing of the other party, the party receiving
such payment shall remit the payment to the party making the billing.
8.8. Freight Overcharge Claims. Liability for any overcharge claim on a
shipment for which revenue was allocated hereunder shall be assumed by
Seller and Purchaser in the same proportion as the linehaul revenues
were allocated pursuant to Section 8.2 hereof.
-----------
8.9. Car and Trailer Repairs. Freight cars and trailers damaged on the Rail
Lines, or requiring repairs not related to damage which are the
responsibility of the user under applicable interchange rules, on or
prior to Closing Date, will be the responsibility of Seller. Those
cars and trailers damaged, or requiring repairs not related to damage
which are the responsibility of the user under applicable interchange
rules, subsequent to Closing Date, will be the responsibility of
Purchaser.
8.10. Freight Loss and Damage.
(a) Seller shall be responsible for claims for freight loss and
damage which arise from acts or omissions that occur on the Rail
Lines prior to or on the Closing Date. Purchaser shall be
responsible for such claims which arise from acts or omissions
that occur on the Rail Lines subsequent to the Closing Date. If
the date or location of an act or omission giving rise to a claim
cannot be determined, freight loss and damage liability
attributable to movements over the Rail Lines shall be assumed by
Seller and Purchaser in accordance with AAR Freight Claims Rules.
(b) Purchaser shall indemnify, defend, and hold harmless Seller from
freight loss and damage claims arising from acts or omissions
that occur on the Rail Lines after the Closing Date. Seller shall
indemnify, defend, and hold harmless Purchaser from freight loss
and damage claims arising from acts or omissions that occur on
the Rail Lines on or before the Closing Date.
(c) This provision is not intended, and shall not be interpreted, as
an admission or acknowledgment of liability by Seller or
Purchaser with respect to any claim for freight loss and damage.
(d) Purchaser and Seller will process claims in accordance with AAR
Rules, Principles and Practices.
9. REPRESENTATIONS AND WARRANTIES
9.1. Representations And Warranties Of Seller. To the best of each Seller's
knowledge, information and belief, each Seller represents and warrants
to Purchaser as follows:
(a) Each Seller (except John C. Nolan) is a validly organized and
existing corporation, in good standing under the laws of the
state of its incorporation. Each Seller has the necessary
authority to own property and conduct its business as now
conducted in the Commonwealth of Pennsylvania and in such other
states where it conducts business.
8
<PAGE>
(b) All necessary corporate action of Seller (except John C. Nolan)
required in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated
by this Agreement has been taken. Subject to the effectiveness of
the exemption or approval by the Board, (i) Seller (except John
C. Nolan) has obtained all necessary governmental authorizations
and approvals (or exemptions from or waivers of such
authorizations or approvals) required in connection with this
Agreement, and (ii) this Agreement constitutes the valid and
binding obligation of Seller enforceable against Seller in
accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium or
similar laws affecting rights of creditors generally and general
principles of equity.
(c) Except as set forth on Exhibit 1, the sale of the Assets and the
consummation of the other transactions contemplated by this
Agreement will not result in any breach of or default under,
violate the conditions of, or accelerate any obligation under,
Seller's articles of incorporation or bylaws or any material
agreement, mortgage, lease, deed, order, law, judgment or rule to
which Seller is a party or by which it is bound.
(d) No agent, broker or other person acting pursuant to the authority
or direction of Seller is entitled to any commission or finder's
fee in connection with the transactions contemplated by this
Agreement.
(e) Seller owns the Assets described in Appendix A free and clear of
all liens, claims or encumbrances (other than Permitted
Encumbrances), and Appendix A is a full and complete listing of
all assets used by Seller in the operation of the Rail Lines. The
Assets are in good working order and are sufficient to permit the
Purchaser to operate the Rail Lines from and after the Closing
Date in the same manner operated by Seller prior to the Closing
Date.
(f) Seller has sufficient interest in the Assets to permit the
operation of the Rail Lines as presently conducted, and there are
no claims which would affect its interest in the Assets so as to
affect Purchaser's ability to conduct operations with the Assets
following the Closing as currently conducted.
(g) Each Contract listed on Appendix B is in full force and effect
and no default has occurred under any such Contract which would
permit the other party to such Contract to terminate the Contract
or otherwise refuse to perform its obligations thereunder, or
which would otherwise have an adverse effect on the Assets or
Purchaser's ability to operate the Rail Lines as currently
operated. Seller has not waived or assigned to any other person
any of its rights under any of the Contracts on Appendix B, and
each of those Contracts may be assigned to Purchaser without
impairment of any rights under the Contract.
(h) Seller is not a party to any indenture, security, contract or
other agreement or subject to any judgment, order, writ or decree
which would (A) impose any adverse condition upon Purchaser, the
Assets or the operation of the Rail Lines or result in the loss
of any material rights currently possessed or used by Seller or
otherwise adversely affect or materially restrict the Assets or
the operation of the Rail Lines as a result of the sale of the
Assets to Purchaser as contemplated
9
<PAGE>
by this Agreement or (B) adversely affect Purchaser's ability to
conduct the operations of the Rail Lines following Closing as
currently conducted.
(i) Except as set forth on Exhibit 1, there are no actions, suits or
proceedings pending or, to the Knowledge of Seller, threatened
against Seller with respect to the Assets or the operation of the
Rail Lines in any court or before any federal, state, local or
other governmental agency.
(j) Seller (except John C. Nolan in his individual capacity) is in
material compliance with all applicable Environmental Laws with
respect to the Assets and the operation of the Rail Lines.
(k) Seller (except John C. Nolan in his individual capacity) has
received no written notice from any governmental agency having
authority (including, without limitation, any federal, state or
local governmental agency) (A) that it has been identified by the
United States Environmental Protection Agency as a potentially
responsible party under CERCLA with respect to a site included
within the Assets listed on the National Priorities List (40 CFR
Part 300 Appendix B (1990)); (B) that any Hazardous Substance has
been discovered on a site included within the Assets; or (C) that
any site included within the Assets is the subject of any ongoing
or ordered remedial investigation, removal or other response
action pursuant to any Environmental Law.
(l) Except with respect to matters which would not adversely affect
the assets, or adversely affect Purchaser's ability to operate
the Assets as currently operated or impose any cost upon
Purchaser following the Closing, (A) no portion of the Assets has
been used for the handling, storage, disposal or processing of
Hazardous Substances except in material compliance with
applicable Environmental Laws, (B) no underground storage tanks
for Hazardous Substances are located in, on or about the Assets,
(C) the Assets do not contain asbestos, urea formaldehyde foam
insulation or transformers or other equipment containing
polychlorinated biphenyls, and (D) there have been no releases of
Hazardous Substances in, on, under or from the Assets except in
material compliance with Environmental Laws.
(m) Seller is acquiring the Shares for its own account and not on
behalf of any other person or persons. Seller is acquiring the
Shares for investment purposes and not for resale or other
distribution. The Shares may not be sold, transferred, assigned
or otherwise disposed of except pursuant to an effective
registration statement or upon receipt of an opinion of counsel
satisfactory to the Purchaser and Emons that the transfer is
exempt from registration under applicable state and federal
securities laws. Seller has been informed that the certificates
representing the Shares will bear the following or substantially
similar legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED
WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR UNDER
ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR
PLEDGED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR AN OPINION
OF
10
<PAGE>
COUNSEL SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT
FROM REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES
LAWS.
9.2. Representations and Warranties by Purchaser. To the best of its
knowledge, information and belief, Purchaser represents and warrants
to Seller as follows:
(a) Purchaser is a validly organized and existing Delaware
corporation, in good standing. Purchaser has full corporate power
and authority to conduct its business as such business is now
being conducted and to own and operate its properties.
(b) All necessary corporate action of Purchaser required in
connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated by this
Agreement has been authorized and obtained. Subject to the
effectiveness of the exemption or approval by the Board, (i)
Purchaser has obtained all necessary governmental authorizations
and approvals (or waivers of such authorizations or approvals)
required in connection with this Agreement, and (ii) this
Agreement constitutes the valid and binding obligation of
Purchaser enforceable against Purchaser in accordance with its
terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws affecting
rights of creditors generally and general principles of equity.
(c) The purchase of the Assets and the consummation of the
transactions contemplated by this Agreement will not result in
any breach of or default under, violate the conditions of or
accelerate any obligation under Purchaser's certificate of
incorporation, bylaws or any material agreement, mortgage, lease,
deed, order, law, judgment or rule to which Purchaser is a party
or by which it is bound.
(d) No agent, broker or other person acting pursuant to the authority
or direction of Purchaser is entitled to any commission or
finder's fee in connection with the transactions contemplated by
this Agreement.
(e) There are no actions, suits or proceedings pending or, to the
Knowledge of Purchaser, threatened against Purchaser in any court
or before any federal, state, local or other governmental agency
which, if decided adversely to the Purchaser, would prohibit the
execution, delivery and performance of this Agreement by
Purchaser.
9.3. Survival. The representations and warranties contained in this
Agreement shall survive the Closing and any termination of this
Agreement and shall remain in full force and effect for five (5) years
after the Closing.
11
<PAGE>
10. CONDITIONS TO THE CLOSING
10.1. Obligation of Purchaser to Close. The obligation of Purchaser to
effect the closing of the transactions contemplated by this Agreement
is subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) The representations and warranties of Seller contained in Section
-------
9 of this Agreement shall have been true in all material respects
-
when made and at the time of Closing as if those representations
and warranties had been made at that time.
(b) Seller shall have performed and complied in all material respects
with all agreements and conditions required by this Agreement to
be performed or complied with by Seller prior to or at the
Closing.
(c) Seller shall have removed prior to Closing all liens, security
interests or other encumbrances, except for Permitted
Encumbrances, if placed or caused to be placed on the Assets.
(d) The Board shall have approved the transactions contemplated by
this Agreement under the ICC Termination Act of 1995 or exempted
the transactions contemplated by this Agreement from the
provisions of the ICC Termination Act of 1995 requiring Board
approval, and that approval or exemption shall have become final
or effective (as the case may be).
(e) PennDOT shall have consented to the assignment of the Contracts
to which it is a party.
(f) Southeastern Pennsylvania Transportation Authority shall have
consented to the possible assignment of the SEPTA Lease.
(g) Frank A. Greek & Son, Inc. shall have consented in writing to
assignment of Seller's interest in a lease agreement between
Frank A. Greek & Son, Inc. and Bristol Industrial Terminal
Railway, Inc. covering the property currently operated by Bristol
Industrial Terminal Railway Inc. to Purchaser or Frank A. Greek &
--
Son and Purchaser shall have entered into a lease agreement
covering the property currently operated by Bristol Industrial
Terminal Railway, Inc.
(h) Ferrellgas shall have consented in writing to assignment of
Seller's interest in that certain track lease agreement dated
November __, 1997, between East Penn Railways, Inc. and
Ferrellgas to Purchaser.
(i) No condition shall have been imposed by the Board in connection
with the transactions contemplated by this Agreement which has a
material and significant adverse effect on the cost of the
transaction or value of the transaction to Purchaser or on
Purchaser's ability to own, use or operate the Assets taken as a
whole in substantially the same manner as Seller owned, used or
operated the Assets.
12
<PAGE>
(j) Between the date of this Agreement and the Closing, no unrepaired
physical loss or damage shall have occurred to the Assets
resulting in a shut-down of any portion of the operation of the
Rail Lines as of the Closing.
(k) Purchaser shall have received an executed copy of each document,
agreement and instrument referred to in this Agreement required
to be executed and delivered by Seller prior to or at the
Closing.
(l) The transactions contemplated by this Agreement to whatever
extent necessary shall have been performed pursuant to proper and
requisite action taken by Seller under applicable law.
(m) There shall not have been instituted or threatened on or before
Closing, any action or proceeding before any court or
governmental agency or body or by a public authority to restrict
or prohibit the acquisition by Seller of the Assets.
(n) Purchaser shall have made such audits and inspections of Seller
and its assets and business as Purchaser deems necessary and
appropriate, and the results of such inspections and audits shall
be satisfactory to Purchaser.
The satisfaction of any of the conditions set forth in this subsection may be
waived by Purchaser in writing delivered at or prior to the Closing.
10.2. Obligation of Seller to Close. The obligation of Seller to effect the
transactions contemplated by this Agreement is subject to the
satisfaction prior to or at the Closing of the following conditions:
(a) The representations and warranties of Purchaser set forth in
Section 9 of this Agreement shall have been true in all material
respects when made and at the time of the Closing as if those
representations and warranties had been made at that time.
(b) Purchaser shall have performed and complied in all material
respects with all agreements and conditions required by this
Agreement to be performed or complied with by Purchaser prior to
or at the Closing.
(c) The Board shall have approved the transactions contemplated by
this Agreement under the ICC Termination Act of 1995 or exempted
the transactions contemplated by this Agreement from the
provisions of the ICC Termination Act of 1995 requiring Board
approval, and that approval or exemption shall have become final
or effective (as the case may be).
(d) Seller shall have received an executed copy of each document,
agreement and instrument referred to in this Agreement required
to be executed and delivered by Purchaser prior to or at the
Closing.
(e) The transactions contemplated by this Agreement to whatever
extent necessary shall have been performed pursuant to proper and
requisite action taken by Purchaser under applicable law.
13
<PAGE>
(f) There shall not have been instituted or threatened on or before
Closing, any action proceeding before any court or governmental
agency or body or by a public authority to restrict or prohibit
the acquisition by Purchaser of the Assets.
The satisfaction of any condition set forth in this subsection may be waived by
Seller in writing delivered at or prior to the Closing.
11. CLOSING
11.1. Place of Closing. The closing of the transactions contemplated by
this Agreement ("Closing") shall take place at the offices of
Purchaser located at 96 South George Street, Suite 400, York, PA.
11.2. Date and Time of Closing. The Closing shall take place at 10:00 a.m.
Eastern Standard Time not later than the 10th business day following
the date on which an order by the Board approving the acquisition of
the Assets by Purchaser has become final or the date on which an
exemption from approval by the Board becomes effective. The date on
which the Closing occurs is referred to in this Agreement as the
"Closing Date."
11.3. Deliveries By Purchaser at Closing; Post-Closing Deliveries. At the
Closing, Purchaser shall:
(a) Pay to Seller one-half of the Cash Portion as adjusted (subject
to any withholding that Purchaser is required to make under
Section 1445 of the Internal Revenue Code of 1986, as amended).
(b) Deliver to Seller a true and correct copy of written
instructions issued by Emons to Emons' transfer agent directing
the transfer agent to issue certificates to Seller representing
the Shares.
(c) Deliver to Seller the Promissory Note.
(d) Deliver to Seller, on or before the twentieth (20th) day
following the Closing, a certificate or certificates
representing the Shares.
(e) Deliver to Seller its undertakings to assume, perform and
discharge the liabilities and obligations of Seller to the
extent assumed by Purchaser under this Agreement, and deliver
such other documents or instruments as are required of Purchaser
in order to effect or evidence the consummation of the
transactions contemplated by this Agreement.
(f) Purchaser shall take all other reasonable steps that Seller
reasonably requests in order to effectuate the transactions
contemplated by this Agreement.
11.4. Deliveries by Seller at Closing. At the Closing, Seller shall:
(a) Effect the transfer of the Assets to Purchaser by such quit
claim deed or deeds in recordable form and substantially in the
form of Appendix E hereto (as permitted for filing by a railroad
or transmitting utility where allowed), bills of sale,
assignments, releases, satisfactions and other documents of
transfer or release reasonably required to transfer the
interests of Seller in the Assets to
14
<PAGE>
Purchaser free and clear of all liens (except Permitted Liens)
consistent with the terms of this Agreement (which deeds, bills
of sale, assignments and other documents may reflect payment of
such specific portions of the Purchase Price as requested by
Purchaser, provided that such allocations and direction will not
be inconsistent with Appendix C or the provisions of Section 1060
of the Internal Revenue Code of 1986, as amended).
(b) Furnish to Purchaser any consents to assignments necessary to
transfer to Purchaser all of Seller's rights under the Contracts
listed on Appendix B.
(c) John C. Nolan shall have executed and delivered to Purchaser a
Noncompetition Agreement in the form of Appendix D hereto.
(d) Except to the extent a corporate Seller consummates a plan of
liquidation, each corporate Seller shall within 120 days of the
Closing Date execute and deliver to Purchaser articles of
amendment to its articles of incorporation effecting a change in
such Seller's name so as to permit the use of such name by
Purchaser in the operation of its business.
(e) Furnish to Purchaser an affidavit as to Seller of the type
referred to in Section 1445(b)(2) of the Internal Revenue Code of
1986, as amended, if Seller wishes to avoid the withholding of
taxes as provided in Section 1445.
(f) Take all other reasonable steps that Purchaser reasonably
requests in order to effectuate the transactions contemplated by
this Agreement, including the assignment of all Contracts that
Purchaser is to assume pursuant to this Agreement.
12. BOOKS, RECORDS AND CORPORATE NAME
12.1. Access to Books and Records.
(a) Prior to Closing, Seller will permit employees and agents of
Purchaser (including consultants, accountants and attorneys) and
its lenders, during normal business hours and on reasonable
notice, to have access to Seller's properties for the purpose of
inspecting the Assets and to inspect and copy Contracts, books,
agreements, plans, reports and other records reflecting or
reasonably relating to the Assets. Seller may have
representatives present during any inspection, and may obtain
any written reports produced by environmental consultants to
Purchaser in connection with inspections of the Assets. Seller
will cooperate with Purchaser's and its lenders' investigation
of the Assets and the status of title to the Assets, and shall
use reasonable efforts to obtain consents from third parties
necessary for Purchaser or its consultants to inspect
transportation contracts with those third parties. Prior to
Closing (including if Closing never occurs), Purchaser agrees
that all information and records obtained by Purchaser or its
lenders pursuant to this Section shall be maintained as
confidential.
(b) From and after the Closing,
1. Purchaser will cooperate with Seller to make available to
Seller, under reasonable conditions, any records of Seller
transferred to Purchaser
15
<PAGE>
pursuant to this Agreement necessary for Seller's corporate
or tax purposes; and
2. Seller will cooperate with Purchaser to make available to
Purchaser, under reasonable conditions, any records of
Seller related to the Assets that may be useful to Purchaser
in the ownership or operation of the Assets or the
performance of obligations assumed by Purchaser.
13. OPERATIONS PRIOR TO CLOSING
13.1. Operations Prior to Closing. Seller agrees that, except with the
written consent of Purchaser, from the date of this Agreement to the
Closing:
(a) Seller will not grant (or make any material amendment to) any
trackage rights, operating rights, licenses, permits, easements
or encumbrances affecting the Assets;
(b) Seller will not sell, lease, assign, mortgage, hypothecate or
otherwise transfer or dispose of any of the Assets (other than
Inventory used in the ordinary course of business);
(c) Seller shall maintain, repair and renew the Assets in the
ordinary course, consistent with past practices (and in any
event to a condition equal to their condition on the date of
this Agreement, ordinary wear and tear excepted);
(d) Seller shall maintain in full force and effect insurance
coverage (including any self-insurance programs) of the types
and in the amounts in existence on June 30, 1997, with respect
to the Assets;
(e) Seller shall maintain in full force and effect all Contracts,
licenses, authorizations and approvals necessary for or related
to the operation and use of the Assets as currently operated and
used; provided, however, that Seller may amend, extend or
terminate Contracts, licenses, authorizations and approvals in
the ordinary course of business following written notice to
Purchaser and written approval of such action from Purchaser;
and
(f) Seller shall cause all transportation contracts entered into
after the date of this Agreement to either specifically permit
or not prohibit assignment to a purchaser of the Rail Lines.
14. CONSENTS AND APPROVALS
14.1. Consents and Approvals. Purchaser and Seller each will cooperate and
use their best efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to prepare all
necessary documentation, to effect promptly all necessary filings and
to satisfy all other conditions and obtain all necessary permits,
consents, approvals, orders and authorizations of or any exemptions
by, all third parties and all governmental entities necessary to
consummate the transactions contemplated by this Agreement. Purchaser
shall be solely responsible for filings or proceedings before the
Board with respect to the approval of the acquisition of the Assets
or securing an exemption from that approval.
16
<PAGE>
Seller will, without cost to Purchaser, cooperate in the filings and
proceedings before the Board and provide any reasonably necessary
data in connection with securing approval or exemption. Prior to
filing any application for approval or exemption with the Board,
Purchaser will deliver a copy to Seller with sufficient time for
Seller to comment upon the application. Any costs, including filing
fees, associated with any filing before the Board shall be paid by
Purchaser.
15. INDEMNIFICATION
15.1. Purchaser's Indemnification. Purchaser shall defend, indemnify and
hold harmless the Seller from and against all claims, losses, costs
and expenses (including attorneys' fees and expenses) which arise out
of or are based on (i) the ownership or operation of the Assets after
the Closing, (ii) any material misrepresentation or material breach
of warranty by Purchaser and (iii) all liabilities of Seller assumed
by Purchaser pursuant to this Agreement, and (iv) any breach of an
Environmental Law or the placement of any Hazardous Substance in, on,
about or under the Assets at any time after the Closing.
15.2. Seller's Indemnification. Seller shall defend, indemnify and hold
harmless Purchaser from and against all claims, losses, costs and
expenses (including attorneys' fees and expenses) which arise out of
or are based on (i) the ownership or operation of the Assets by
Seller prior to the Closing; (ii) any material misrepresentation or
material breach of warranty by Seller; (iii) all liabilities of
Seller that are not assumed by Purchaser pursuant to this Agreement
and (iv) (except John C. Nolan) any breach of an Environmental Law or
the existence of any Hazardous Substance in, on, about or under the
Assets at any time prior to the Closing.
15.3. Apportionment. All claims, losses, costs, and expenses giving rise to
any indemnification hereunder, the underlying facts of which have
arisen in part prior to the Closing and in part on or after the
Closing, shall be reasonably apportioned between Seller and
Purchaser.
15.4. Indemnification Procedures.
(a) The party seeking indemnification pursuant to Sections 15.1 or
----------------
15.2 above (the "Indemnified Party") shall give the party
----
obligated to indemnify (the "Indemnifying Party") notice of any
claim or assertion of liability by a third party with respect to
which the Indemnified Party is seeking indemnification (a
"Claim").
(b) The Indemnifying Party shall have the right to undertake the
defense of such Claim (by counsel or other representatives of
its own choosing and reasonably acceptable to the Indemnified
Party) at the Indemnifying Party's sole risk and cost.
Notwithstanding the fact that the Indemnifying Party undertakes
the defense of a Claim, if there is a reasonable probability
that the Claim may materially and adversely affect the
Indemnified Party, the Indemnified Party (by counsel or through
other representatives of its own choosing) shall have the right,
at its expense, to participate in the defense, compromise or
settlement of the Claim.
17
<PAGE>
(c) If the Indemnifying Party undertakes the defense of a Claim, (i)
the Indemnifying Party shall keep the Indemnified Party informed
of the status of the defense and furnish the Indemnified Party
with copies of all documents, instruments and information
reasonably requested by the Indemnified Party in connection with
the Claim; (ii) the Indemnified Party (by counsel or other
representatives of its own choosing and at its own expense) shall
have the right to consult with the Indemnifying Party (and its
counsel and representatives) concerning the Claim, and the
Indemnifying Party and the Indemnified Party (and their
respective counsel and representatives) shall cooperate with
respect to the Claim; and (iii) the Indemnifying Party shall not,
without the written consent of the Indemnified Party, settle or
compromise a Claim or consent to the entry of a judgment without
obtaining from the claimant or plaintiff an unconditional release
of all liability of the Indemnified Party in respect of such
Claim in a form satisfactory to the Indemnified Party and under
circumstances which do not require the Indemnified Party to pay
any money or consent to the taking or withholding of any action
affecting it or any of its properties, assets or businesses.
(d) If the Indemnifying Party does not elect to undertake the defense
of a Claim or fails to defend the Claim within a reasonable time
after notice of the Claim, the Indemnified Party shall have the
right to undertake the defense, compromise or settlement of the
Claim (by counsel or other representatives of the Indemnified
Party's own choosing) on behalf of, for the account of and at the
risk and cost of the Indemnifying Party. In such event, the
Indemnifying Party shall pay (in addition to any other sums
required to be paid under the terms of this Agreement) the costs
and expenses incurred by the Indemnified Party in connection with
the defense, settlement or compromise of the Claim as and when
those costs are incurred.
16. TERMINATION
16.1. Grounds for Termination. This Agreement and the consummation of the
transactions contemplated by this Agreement may be terminated prior
to the Closing:
(a) By the agreement in writing of Seller and Purchaser at any time,
(b) By either Purchaser or Seller if the Closing does not occur
prior to [DECEMBER 15, 1997], and the failure of the Closing to
occur is not due to the fault of, or breach of this Agreement
by, either party,
(c) By Purchaser, pursuant to Section 5.1(c) hereof,
--------------
(d) By Purchaser, by written notice to Seller, if Seller has made a
material misrepresentation in, or if Seller is guilty of a
material breach of the representations and warranties of seller
contained in, this Agreement, or if there has been a failure by
Seller to comply with any of its material obligations under this
Agreement (including without limitation the failure by Seller to
timely satisfy the conditions to Closing set forth in Section
-------
10.1), and such material
----
18
<PAGE>
misrepresentation or breach of warranty or failure has not been
cured after 30 days' notice,
(e) By Seller, by written notice to Purchaser, if Purchaser has made
a material misrepresentation in, or if Purchaser is guilty of a
material breach of the representations and warranties of
Purchaser contained in, this Agreement, or if there has been a
failure by Purchaser to comply with any of its material
obligations under this Agreement (including without limitation
the failure by Purchaser to timely satisfy the conditions to
Closing set forth in Section 10.2), and such material
------- ----
misrepresentation or breach of warranty material failure has not
been cured after 30 days' notice, or
(f) By either Purchaser or Seller if the Board shall have disapproved
the transactions contemplated by this Agreement and such
disapproval shall have become final and not subject to further
proceedings or appeal, whether by lapse of time or otherwise.
Termination by Purchaser or Seller pursuant to paragraphs (c) or (d) above shall
not relieve the non-terminating party of any liability for misrepresentation or
breach.
17. MISCELLANEOUS
17.1. Title and Other Descriptions. Prior to the Closing, the description of
the Assets may be changed by mutual agreement of Purchaser and Seller
to add or delete items of tangible property or Contracts. From time to
time after the Closing, at Purchaser's request and without further
consideration, Seller will execute and deliver other instruments of
conveyance and transfer and take other actions as Purchaser reasonably
requires to convey, transfer to and vest in Purchaser whatever title
Seller may have in and to the Assets, and to put Purchaser in
possession of the Assets. In the case of Contracts and rights, if any,
that cannot be transferred effectively without the consent of third
parties, Seller will request these consents promptly and will make all
reasonable efforts to obtain the consents. From time to time after the
Closing, at Seller's request and without further consideration,
Purchaser will execute and deliver other instruments of conveyance,
transfer and assumption and take other actions as Seller reasonably
requires to assume the liabilities and obligations of Seller to be
assumed by Purchaser pursuant to this Agreement.
17.2. Waiver. Purchaser may in writing extend the time for or waive
performance of any of the obligations, representations or warranties
of Seller under this Agreement. Seller may in writing take similar
action with respect to the obligations, representations or warranties
of Purchaser under this Agreement.
17.3. Expenses. Purchaser shall be responsible for and shall pay all
expenses, including attorney's fees, incurred by Purchaser in
connection with this Agreement and the consummation of the
transactions contemplated by this Agreement, and Seller shall be
responsible for and shall pay all expenses, including attorney's fees,
incurred by Seller in connection with this Agreement and the
consummation of the transactions contemplated by this Agreement,
except that sales, use, gross receipts, excise or similar taxes or
governmental charges arising or levied with respect to the sale and
transfer of the Assets,
19
<PAGE>
whether assessed against the Assets, Seller or Purchaser, shall be
shared equally between Seller and Purchaser.
17.4. Transitional Matters. Prior to the Closing, Purchaser and Seller may
agree on different or additional procedures to implement their
respective rights and obligations, including procedures which are
required to minimize or avoid any disruption of the settlement of
interline accounts by draft in the normal course of business.
17.5. Information Releases. No press release, information release or other
public or private announcement of the existence of this Agreement or
of the pendency of the transactions contemplated by this Agreement
shall be made by any party without the prior approval of the other
party, except as may be required by law including without limitation,
reporting and disclosure requirements of the Securities and Exchange
Commission or the rules of the NASDAQ.
17.6. Entire Agreement. This Agreement, including the Appendices and
Exhibits attached to this Agreement, constitutes the entire agreement
and understanding between Seller and Purchaser with respect to the
sale and purchase of the Assets and the other transactions
contemplated by this Agreement. All prior representations,
understandings and agreements between the parties with respect to the
purchase and sale of the Assets and the other transactions
contemplated by this Agreement are superseded by the terms of this
Agreement.
17.7. Choice of Law. The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the Commonwealth of
Pennsylvania, including for the purposes of choice of law, as though
all acts and omissions related to this Agreement occurred in
Pennsylvania.
17.8. Severability. The provisions of this Agreement shall, where possible,
be interpreted in a manner necessary to sustain their legality and
enforceability; the unenforceability of any provision of this
Agreement in a specific situation shall not affect the enforceability
of that provision in other situations or of other provisions of this
Agreement.
17.9. Counterparts. This Agreement may be executed in two or more original
counterparts, each of which shall for all purposes be considered an
original of this Agreement.
17.10. Headings. Section and subsection headings contained in this Agreement
are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the
provisions of this Agreement.
17.11. Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of the respective successors and assigns of the
parties. Purchaser may assign its rights under this Agreement, in
whole or in part, to Emons or to another direct or indirect wholly-
owned subsidiary of Emons.
17.12. Notices. All notices given pursuant to this Agreement shall be
delivered by hand, sent by United States registered or certified mail,
postage prepaid, delivered by recognized express mail or overnight
courier service, or delivered by electronic facsimile
20
<PAGE>
with a confirmation copy delivered by any of the preceding methods,
addressed as follows (or to another address or person as a party may
specify on notice to the other):
(a) If to Seller (which shall constitute notice to all Sellers):
Mr. John C. Nolan
1973 Wellington Drive
Langhorne, PA 19047
with copies to:
David A. Binder, Esq.
226 North Sixth Street
Reading, PA 19601
(b) If to Purchaser:
Penn Eastern Rail Lines, Inc.
c/o Emons Transportation Group, Inc.
96 South George Street, Suite 400
York, PA 17401
Attention: Mr. Robert Grossman, Chairman and CEO
with copies to:
Oppenheimer Wolff & Donnelly
1020 Nineteenth Street NW, Suite 400
Washington, DC 20036
Attention: Kevin M. Sheys, Esq.
IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement as of the date first written above.
/s/John C. Nolan
----------------------------------------------
JOHN C. NOLAN
LANCASTER NORTHERN RAILWAY, INC.
By: /s/John C. Nolan
-------------------------------------------
Name: John C. Nolan
-----------------------------------------
Title: President
----------------------------------------
21
<PAGE>
CHESTER VALLEY RAILWAY, INC.
By: /s/John C. Nolan
----------------------------------------
Name: John C. Nolan
--------------------------------------
Title: President
-------------------------------------
East Penn Railways, Inc.
By: /s/John C. Nolan
---------------------------------------
Name: John C. Nolan
--------------------------------------
Title: President
-------------------------------------
BRISTOL INDUSTRIAL TERMINAL RAILWAY, INC.
By: /s/John C. Nolan
---------------------------------------
Name: John C. Nolan
-------------------------------------
Title: President
------------------------------------
PENN EASTERN RAIL LINES, INC.
By: /s/Scott F. Ziegler
----------------------------------------
Name: Scott F. Ziegler
-------------------------------------
Title: VP - Finance, Controller & Secretary
------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 10(D)
ASSET PURCHASE AGREEMENT
Between
NEW HAMPSHIRE AND VERMONT RAILROAD COMPANY, INC.
and
ST. LAWRENCE & ATLANTIC RAILROAD COMPANY
----------------------------------------
Dated
December 12, 1997
----------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ASSET PURCHASE AGREEMENT
ST. LAWRENCE & ATLANTIC RAILROAD COMPANY, a Delaware corporation
("Purchaser") and NEW HAMPSHIRE AND VERMONT RAILROAD COMPANY, INC., a Florida
corporation (the "Seller") agree as follows:
1. DEFINITIONS
The following terms when used with initial capitalization in this
Agreement, whether in the singular or the plural, have the meanings ascribed to
them below:
"Agreement" means this Asset Purchase Agreement, including its
Appendices and Exhibits.
"Assets" means the land, trackage and fixtures comprising a portion of
the railroad right of way conveyed by the Boston and Maine Corporation (the
"B&M") to the Seller by Release Deed dated May 27, 1992 (the "B&M Deed") and
otherwise described as follows:
A certain parcel or strip of railroad land of varying width together
with the fixtures and improvements thereon, lying in the City of
Groveton at Northumberland in the County of Coos County, New Hampshire,
being a part of the railroad line formerly known as the "Groveton
Branch" of the Boston and Maine Corporation, and being shown on
Railroad Valuation Plans for Section 22, Maps 52 and 53, which plans
are entitled "Right of Way and Track Map, The Concord & Montreal R.R.
[sic], Operated by the Boston and Maine R.R. [sic]", dated June 30,
1914 and prepared by the Office of the Valuation Engineer of the Boston
& Maine Railroad (predecessor of the Boston and Maine Corporation), and
being more particularly described as follows:
Beginning in the City of Groveton at Northumberland, Coos
County, New Hampshire, at a point shown on Valuation Plans for
Section 22, Map 53 at Station 2741+84 at the intersection with
Purchaser's railroad right of way, thence running in a
generally Southerly direction along said Valuation Section 22
to a point in the City of Groveton at Northumberland, Coos
County, New Hampshire, shown on Valuation Plans for Section
22, Map __ at Station __________
The above assets are more particularly described within the heavy dashed lines
shown on plans for Valuation Section 22, Map 53, duplicate copies of which have
been initialed as of the date hereof by the Seller and the Purchaser for
identification (the "Plans"). Unmarked copies of the Plans are on file with the
State of New Hampshire Department of Transportation at Concord, New Hampshire.
"Closing" has the meaning given to it in Section 8.1 of this Agreement.
-----------
1
<PAGE>
"Closing Date" has the meaning given to it in Section 8.2 of this
-----------
Agreement.
"Contracts" means contracts, leases, commitments, agreements and
arrangements.
"Board" means the Surface Transportation Board established under 49
U.S.C. (S)10101 et seq. or any successor agency.
"Environmental Law" means any law, judgment, decree, order, license,
rule or regulation pertaining to environmental matters, including without
limitation, those arising under the Resource Conservation and Recovery Act of
1976, as amended (42 U.S.C. (S)6901 et seq.), CERCLA, the Superfund Amendments
and Reauthorization Act of 1986, as amended (Pub. L. 99-499, Pub. L. 99-563,
Pub. L. 100-202 and Pub. L. 101-144), the Clean Water Act, as amended (33 U.S.C.
(S)1251 et seq.), the Clean Air Act, as amended (42 U.S.C. (S)7401 et seq.), the
Toxic Substances Control Act, as amended (15 U.S.C. (S)2601 et seq.), the Safe
Drinking Water Act, as amended (42 U.S.C. (S)300f et seq.), the Emergency
Planning and Community Right-to-Know Act of 1986, as amended (42 U.S.C. (S)11001
et seq.) and any other federal, state or local statute, regulation, ordinance,
order or decree pertaining to the environment.
"Hazardous Material" includes, for purposes of this agreement, any
substance or material: (a) the presence of which requires investigation or
remediation under any federal, state or local law or regulation, (b) which is or
becomes regulated by any federal, state or local governmental authority,
including without limitation, any substance or waste material which is defined
or listed as a "hazardous waste," "toxic waste," "extremely hazardous waste,"
"restricted hazardous waste," "industrial waste," "hazardous substance,"
"regulated substance," "solid waste," "special waste," "hazardous material,"
"pollutant" or "contaminant," or (c) which poses an unreasonable risk of injury
to human health or the environment.
"Permitted Encumbrances" means any
(a) liens for taxes, assessments, levies, fees and other
government charges not yet due or payable or which, if due
and unpaid, are being contested in good faith and by
appropriate proceedings,
(b) mechanics' and materialmen's liens and similar charges
incurred in the ordinary course of Seller's business which
individually or in the aggregate do not materially interfere
with railroad operations on the Assets as such operations
are currently conducted,
(c) utility easements, licenses or permits located on or
crossing any portion of the Assets that do not materially
interfere with railroad operations on the Assets as such
operations are currently conducted,
(d) road crossing agreements with governmental authorities or
private parties that do not materially interfere with
railroad operations on the Assets as such operations are
currently conducted,
2
<PAGE>
(e) leases, easements, trackage rights agreements and tenancy
agreements existing as of the date of this Agreement which
are assumed by Purchaser in accordance with this Agreement,
(f) rights of reverter which have not been violated and will not
be violated as long as the affected real property is used
for railroad purposes,
(g) encumbrances specifically agreed to by Purchaser in a
separate writing delivered to the Seller,
(h) matters customarily excepted by title companies in their
commitments for title insurance or title policies as
"standard exceptions",
(i) rights reserved to or vested in any governmental authority
with respect to the Assets or their regulation, and
(j) acts done by, through or under Purchaser, its employees,
agents and contractors.
(k) Any state of facts which an accurate survey or personal
inspection would reveal.
(l) Regulations of any governmental authority, agency,
department or instrumentality having or claiming
jurisdiction of or with respect to or affecting the Assets,
including without limitation provisions of existing
building, land use, subdivision control and zoning laws.
(m) Encumbrances of record which do not materially and adversely
affect the use of the Assets for railroad operations as they
are currently conducted.
(n) The reservation by any prior grantor of any right, title or
interest to, or with respect to, the Assets, including
without limitation such reservations as are contained in the
B&M Deed; mineral rights and rights to prospect for and
extract oil, gas and other hydrocarbon substances, minerals,
ores and metals of every nature and kind in and under the
Assets; and any lease, permit or agreement with respect to
any such reservation; provided that such reservation does
not materially and adversely affect the use of the Assets
for railroad operations as they are currently conducted.
(o) Encumbrances arising from the Local Rail Freight Assistance
Contract listed on Appendix A.
"Purchase Price" has the meaning given to it in Section 3.1 of this
-----------
Agreement.
"Purchaser" means St. Lawrence & Atlantic Railroad Company, a Delaware
corporation.
3
<PAGE>
"Seller" means New Hampshire and Vermont Railroad Company, Inc., a
Florida corporation.
2. PURCHASE AND SALE OF ASSETS; ASSIGNMENT OF CONTRACTS
2.1. General. Under the terms and subject to the conditions contained in
this Agreement, Seller agrees to sell, convey, transfer and deliver to
Purchaser, and Purchaser agrees to purchase, on the Closing Date, all
of the Assets.
2.2. Assignment of Contracts. Contemporaneous with the transfer of the
Assets to Purchaser, Seller agrees to assign and set-over to Purchaser
all of such Seller's rights and interests under the Contracts listed
on Appendix A hereto. Contemporaneous with the transfer of the Assets
to Purchaser, the parties shall terminate all agreements currently in
existence whereby Seller operates over Purchaser's track to serve the
Wausau Paper Company facilities.
2.3. Condition of Assets. SELLER AND PURCHASER AGREE THAT, EXCEPT AS
PROVIDED HEREIN: (A) THE PURCHASER HAS INSPECTED THE ASSETS AND IS
SATISFIED WITH THE CONDITION THEREOF IN EVERY RESPECT; (B) SELLER
MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE
DESIGN, CONDITION, MERCHANTABILITY, FITNESS FOR ANY PARTICULAR
PURPOSE, QUALITY OR WORKMANSHIP OF THE ASSETS; (C) SELLER SHALL NOT BE
LIABLE TO THE PURCHASER FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING STRICT LIABILITY IN TORT) WITH RESPECT TO THE DESIGN,
CONDITION, QUALITY, WORKMANSHIP, SAFETY, MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE OF THE ASSETS; AND (D) AT THE CLOSING,
PURCHASER SHALL TAKE THE ASSETS IN "AS IS AND WHERE IS" AND "WITH ALL
FAULTS" CONDITION, AND SUBJECT TO ALL LIMITATIONS ON SELLER'S RIGHT,
TITLE AND INTEREST TO THE ASSETS. THIS SECTION SHALL NOT DIMINISH OR
OTHERWISE ALTER THE RIGHT OF PURCHASER SECTIONS 4 AND 7 HEREOF.
----------------
2.4. Title. The Assets shall be conveyed by a deed (the "Deed") in a form
substantially identical to that attached hereto as Appendix B. Title
to the Assets, upon Closing, shall be good and marketable, subject
only to Permitted Encumbrances; Seller, for itself and its successors
and assigns, warrants and covenants that at the time of the delivery
of the Deed the Assets shall be free from all encumbrances made by
Seller, except as shall be stated in the Deed, and shall warrant and
defend the same to Buyer, it successors and assigns, forever against
the lawful claims and demands of all persons claiming by, through or
under Seller, but against none other. Except for the foregoing, Seller
does not make, nor at Closing will make, any other warranty or
covenant of title or otherwise.
4
<PAGE>
3. PURCHASE PRICE
3.1. Amount of Purchase Price. The purchase price ("Purchase Price") for
the Assets is $250,000, to be paid as follows:
(a) Fifty Thousand Dollars ($50,000) to be paid to Seller as a fully
refundable deposit of earnest money upon execution of this
Agreement by all parties hereto, and
(b) Two Hundred Thirty Thousand Dollars ($200,000) to be paid to
Seller at the Closing hereunder.
3.2. Payment of Purchase Price. All amounts due Seller hereunder shall be
paid by wire transfer of immediately available funds to one or more
bank accounts designated by Seller prior to the Closing or, at the
Seller's sole election, by one or more checks issued by Purchaser.
3.3. Reconciliation and Payment of Switching and Car Charges. At the
Closing, the parties shall perform a reconciliation of any and all
outstanding switching, car or similar charges owing between them
relating to their respective operations prior to the Closing. The net
amount owing by one party to the other shall be paid and discharged at
the Closing.
4. CHANGES IN ASSETS
4.1. Loss of and Damage to Assets. If between the date of this Agreement
and the Closing Date Assets with a fair market value in excess of
$10,000 in the aggregate are sold, lost, destroyed or condemned, or
suffer any material damage and are not replaced or repaired prior to
the Closing Date, and such loss or damage is not caused by the
negligent acts or omissions of Purchaser, then, at the option of
Purchaser, either:
(a) the Purchase Price shall be reduced by the excess of
1. the fair market value of the Assets immediately prior to the
sale, loss, destruction, condemnation or damage, over
2. the salvage value, if any, of the Assets immediately
following the sale, loss, destruction, condemnation or
damage;
(b) no reduction to the Purchase Price shall be made, and the Seller
shall, on the Closing Date, assign to Purchaser all sale,
insurance or condemnation proceeds payable to the Seller on
account of the loss, destruction, condemnation or damage pursuant
to an assignment reasonably satisfactory to Purchaser and pay to
Purchaser that portion, if any, of any deductible amount under
any insurance applicable to the claim for loss, destruction or
damage; or
5
<PAGE>
(c) the Agreement and the consummation of the transactions
contemplated by this Agreement shall be terminated.
5. ASSUMPTION OF LIABILITIES AND OBLIGATIONS
5.1. Liabilities to be Assumed. As of the Closing, Purchaser agrees to
assume, discharge and pay in accordance with their respective terms
and to become responsible for the liabilities and obligations of the
Seller under all Contracts set forth on Appendix A, to the extent
those liabilities and obligations accrue after the Closing.
5.2. Liabilities Not to be Assumed. Except as expressly provided elsewhere
in this Agreement, Purchaser shall not be obligated to assume any
liability or obligation whatsoever, including but not limited to, the
following:
(a) obligations under any plan to which the Seller contributes
pursuant to the applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, or under any other
employee benefit plan, pension plan or similar plan; and
(b) all claims against or obligations of Seller arising out of or in
connection with any labor agreement or arrangement.
5.3. Insurance. The provisions of this Section shall not be construed to
constitute the assumption of any liabilities or obligations in a
manner which would avoid the applicability of any insurance policy
with respect to any event or circumstance arising prior to the
Closing.
5.4. No Third Party Rights. This Section is not intended to create any
rights in favor of any person other than Purchaser and Seller.
5.5. Proration of Taxes and Assessments. Seller shall pay any and all
special taxes and/or assessments levied upon the Assets that are due
and payable on or before the Closing Date. Thereafter, Purchaser shall
pay any and all taxes and/or assessments due and payable after the
Closing Date. Seller shall pay taxes, if any assessed on the Assets
for the tax year prior to the year in which the Deed is delivered and
its pro rata share of taxes for the tax year in which the Deed is
delivered.
6. REPRESENTATIONS AND WARRANTIES
6.1. Representations and Warranties of Seller. To the best of each Seller's
knowledge, information and belief, each Seller represents and warrants
to Purchaser as follows:
(a) Seller is a validly organized and existing corporation, in good
standing under the laws of the state of its incorporation. Seller
has the necessary authority to own property and conduct its
business as now conducted in the State of New Hampshire and in
such other states where it conducts business.
6
<PAGE>
(b) All necessary corporate action of Seller required in connection
with the execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement
has been taken. Subject to the effectiveness of the exemption or
approval by the Board, (i) Seller has obtained all necessary
governmental authorizations and approvals (or exemptions from or
waivers of such authorizations or approvals) required in
connection with this Agreement, and (ii) this Agreement
constitutes the valid and binding obligation of Seller
enforceable against Seller in accordance with its terms, except
as such enforcement may be limited by applicable bankruptcy,
insolvency, moratorium or similar laws affecting rights of
creditors generally and general principles of equity.
(c) The sale of the Assets and the consummation of the other
transactions contemplated by this Agreement will not result in
any breach of or default under, violate the conditions of, or
accelerate any obligation under, Seller's articles of
incorporation or bylaws or any material agreement, mortgage,
lease, deed, order, law, judgment or rule to which Seller is a
party or by which it is bound.
(d) No agent, broker or other person acting pursuant to the authority
or direction of Seller is entitled to any commission or finder's
fee in connection with the transactions contemplated by this
Agreement.
(e) Appendix A is a full and complete listing of all Contracts used
by Seller in the operation of the Assets or related to the
Assets.
(f) Each Contract listed on Appendix A is in full force and effect
and no default has occurred under any such Contract which would
permit the other party to such Contract to terminate the Contract
or otherwise refuse to perform its obligations thereunder, or
which would otherwise have an adverse effect on the Assets or
Purchaser's ability to operate the Assets as currently operated.
Seller has not waived or assigned to any other person any of its
rights under any of the Contracts on Appendix A, and each of
those Contracts may be assigned to Purchaser without impairment
of any rights under the Contract.
(g) Except for Permitted Encumbrances, Seller is not a party to any
indenture, security, contract or other agreement or subject to
any judgment, order, writ or decree which would (A) impose any
adverse condition upon Purchaser, the Assets or the operation of
the Assets or result in the loss of any material rights currently
possessed or used by Seller or otherwise adversely affect or
materially restrict the Assets or the operation of the Assets as
a result of the sale of the Assets to Purchaser as contemplated
by this Agreement or (B) adversely affect Purchaser's ability to
conduct the operations of the Assets following Closing as
currently conducted.
7
<PAGE>
(h) There are no actions, suits or proceedings pending or, to the
knowledge of Seller, threatened against Seller with respect to
the Assets or the operation of the Assets in any court or before
any federal, state, local or other governmental agency.
(i) Seller has received no written notice from any governmental
agency having authority (including, without limitation, any
federal, state or local governmental agency) (A) that it has been
identified by the United States Environmental Protection Agency
as a potentially responsible party under CERCLA with respect to a
site included within the Assets listed on the National Priorities
List (40 CFR Part 300 Appendix A (1990)); (B) that any Hazardous
Substance has been discovered on a site included within the
Assets; or (C) that any site included within the Assets is the
subject of any ongoing or ordered remedial investigation, removal
or other response action pursuant to any Environmental Law.
6.2. Representations and Warranties by Purchaser. To the best of its
knowledge, information and belief, Purchaser represents and warrants
to Seller as follows:
(a) Purchaser is a validly organized and existing Delaware
corporation, in good standing. Purchaser has full corporate power
and authority to conduct its business as such business is now
being conducted and to own and operate its properties.
(b) All necessary corporate action of Purchaser required in
connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated by this
Agreement has been authorized and obtained. Subject to the
effectiveness of the exemption or approval by the Board, (i)
Purchaser has obtained all necessary governmental authorizations
and approvals (or waivers of such authorizations or approvals)
required in connection with this Agreement, and (ii) this
Agreement constitutes the valid and binding obligation of
Purchaser enforceable against Purchaser in accordance with its
terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws affecting
rights of creditors generally and general principles of equity.
(c) The purchase of the Assets and the consummation of the
transactions contemplated by this Agreement will not result in
any breach of or default under, violate the conditions of or
accelerate any obligation under Purchaser's certificate of
incorporation, bylaws or any material agreement, mortgage, lease,
deed, order, law, judgment or rule to which Purchaser is a party
or by which it is bound.
(d) No agent, broker or other person acting pursuant to the authority
or direction of Purchaser is entitled to any commission or
finder's fee in connection with the transactions contemplated by
this Agreement.
8
<PAGE>
(e) There are no actions, suits or proceedings pending or, to the
knowledge of Purchaser, threatened against Purchaser in any court
or before any federal, state, local or other governmental agency
which, if decided adversely to the Purchaser, would prohibit the
execution, delivery and performance of this Agreement by
Purchaser.
6.3. Survival. The representations and warranties contained in this
Agreement shall survive the Closing and any termination of this
Agreement and shall remain in full force and effect for five (5) years
after the Closing.
7. CONDITIONS TO THE CLOSING
7.1. Obligation of Purchaser to Close. The obligation of Purchaser to
effect the closing of the transactions contemplated by this Agreement
is subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) Seller shall have performed and complied in all material respects
with all agreements and conditions required by this Agreement to
be performed or complied with by Seller prior to or at the
Closing.
(b) Seller shall have removed prior to Closing all liens, security
interests or other encumbrances, except for Permitted
Encumbrances, if placed or caused to be placed on the Assets,
including without limitation a release of the mortgage lien of
B&M, insofar as such mortgage lien encumbers the Assets. Seller
may use the Purchase Price, or any portion thereof, paid by the
Purchaser at the Closing to clear the title of any mortgage or
other title encumbrance not in accordance with the terms hereof,
provided that any instrument so procured is delivered at Closing
as a condition of Closing.
(c) The Board shall have approved the transactions contemplated by
this Agreement under the ICC Termination Act of 1995 or exempted
the transactions contemplated by this Agreement from the
provisions of the ICC Termination Act of 1995 requiring Board
approval, and that approval or exemption shall have become final
or effective (as the case may be).
(d) The State of New Hampshire shall have waived in writing its right
of first refusal to purchase the Assets pursuant to New Hampshire
Rev. Stat. Ann. (S) 228; 60-b, or the time for such exercise
shall have expired.
(e) No condition shall have been imposed by the Board in connection
with the transactions contemplated by this Agreement which has a
material and significant adverse effect on the cost of the
transaction or value of the transaction to Purchaser or on
Purchaser's ability to own, use or operate the Assets taken as a
whole in substantially the same manner as Seller owned, used or
operated the Assets.
9
<PAGE>
(f) Purchaser shall have received an executed copy of each document,
agreement and instrument referred to in this Agreement required
to be executed and delivered by Seller prior to or at the
Closing.
(g) The transactions contemplated by this Agreement to whatever
extent necessary shall have been performed pursuant to proper and
requisite action taken by Seller under applicable law.
(h) There shall not have been instituted or threatened on or before
Closing, any action proceeding before any court or governmental
agency or body or by a public authority to restrict or prohibit
the acquisition by Purchaser of the Assets.
(i) Purchaser shall have the approval and consent of its lender,
which approval and consent shall be obtained no later than
December 19, 1997.
(j) Seller shall have executed an Interchange Agreement, in form and
substance mutually acceptable to the parties, relating to their
interchange operations after the Closing.
(k) Purchaser shall have executed an agreement of assignment and
assumption with respect to the Local Rail Freight Assistance
Contracts listed on Appendix A and shall be reasonably satisfied
that the encumbrances arising from such Contracts shall not
materially adversely affect Purchaser's operations on the Assets.
The satisfaction of any of the conditions set forth in this subsection may
be waived by Purchaser in writing delivered at or prior to the Closing.
7.2. Obligation of Seller to Close. The obligation of Seller to effect the
transactions contemplated by this Agreement is subject to the
satisfaction prior to or at the Closing of the following conditions:
(a) Purchaser shall have performed and complied in all material
respects with all agreements and conditions required by this
Agreement to be performed or complied with by Purchaser prior to
or at the Closing.
(b) The Board shall have approved the transactions contemplated by
this Agreement under the ICC Termination Act of 1995 or exempted
the transactions contemplated by this Agreement from the
provisions of the ICC Termination Act of 1995 requiring Board
approval, and that approval or exemption shall have become final
or effective (as the case may be).
(c) The State of New Hampshire shall have waived in writing its right
of first refusal to purchase the Assets pursuant to New Hampshire
Rev. Stat. Ann. (S) 228; 60-b, or the time for such exercise
shall have expired.
10
<PAGE>
(d) Seller shall have received an executed copy of each document,
agreement and instrument referred to in this Agreement required
to be executed and delivered by Purchaser prior to or at the
Closing.
(e) The transactions contemplated by this Agreement to whatever
extent necessary shall have been performed pursuant to proper and
requisite action taken by Purchaser under applicable law.
(f) There shall not have been instituted or threatened on or before
Closing, any action proceeding before any court or governmental
agency or body or by a public authority to restrict or prohibit
the acquisition by Purchaser of the Assets.
(g) Purchaser shall have executed an Interchange Agreement, in form
and substance mutually acceptable to the parties, relating to
their interchange operations after the Closing.
The satisfaction of any condition set forth in this subsection may be waived
by Seller in writing delivered at or prior to the Closing.
8. CLOSING
8.1. Place of Closing. The closing of the transactions contemplated by this
Agreement ("Closing") shall take place at the offices of Purchaser
located at 96 South George Street, Suite 400, York, PA, or at such
other location as the parties may agree upon.
8.2. Date and Time of Closing. The Closing shall take place at 10:00 a.m.
Eastern Standard Time on December 19, 1997, or at such other time as
the parties may agree upon.
8.3. Deliveries by Purchaser at Closing. At the Closing, Purchaser shall:
(a) Pay to Seller the balance of the Purchase Price.
(b) Deliver to Seller its undertakings to assume, perform and
discharge the liabilities and obligations of Seller to the extent
assumed by Purchaser under this Agreement, and deliver such other
documents or instruments as are required of Purchaser in order to
effect or evidence the consummation of the transactions
contemplated by this Agreement.
(c) Purchaser shall take all other reasonable steps that Seller
reasonably requests in order to effectuate the transactions
contemplated by this Agreement.
8.4. Deliveries by Seller at Closing. At the Closing, Seller shall:
(a) Deliver the Deed and such bills of sale, assignments, releases,
satisfactions and other documents of transfer or release as are
required or may be reasonably required to transfer the interests
of Seller in the Assets to Purchaser consistent
11
<PAGE>
with the terms of this Agreement (which deeds, bills of sale,
assignments and other documents may reflect payment of such
specific portions of the Purchase Price as the parties shall
agree upon, provided that such allocations and direction will not
be inconsistent with Appendix C or the provisions of Section 1060
of the Internal Revenue Code of 1986, as amended).
(b) Furnish to Purchaser any consents to assignments necessary to
transfer to Purchaser all of Seller's rights under the Contracts
listed on Appendix A.
(c) Furnish to Purchaser an affidavit as to Seller of the type
referred to in Section 1445(b)(2) of the Internal Revenue Code of
1986, as amended, if Seller wishes to avoid the withholding of
taxes as provided in Section 1445.
(d) Take all other reasonable steps that Purchaser reasonably
requests in order to effectuate the transactions contemplated by
this Agreement, including the assignment of all Contracts that
Purchaser is to assume pursuant to this Agreement.
9. BOOKS AND RECORDS
Prior to Closing, Seller will permit employees and agents of Purchaser
(including consultants, accountants and attorneys) and its lenders, during
normal business hours and on reasonable notice, to have access to Seller's
properties for the purpose of inspecting the Assets and to inspect and copy
Contracts, agreements, plans and other records reasonably relating to the
Assets. Prior to and after Closing, Seller will cooperate with Purchaser to make
available to Purchaser, under reasonable conditions, any records of Seller
related to the Assets that may be useful to Purchaser in the ownership or
operation of the Assets or the performance of obligations assumed by Purchaser.
10. OPERATIONS PRIOR TO CLOSING
10.1. Operations Prior to Closing. Seller agrees that, except with the
written consent of Purchaser, from the date of this Agreement to the
Closing:
(a) Seller will not grant (or make any material amendment to) any
trackage rights, operating rights, licenses, permits, easements
or encumbrances affecting the Assets;
(b) Seller will not sell, lease, assign, mortgage, hypothecate or
otherwise transfer or dispose of any of the Assets (other than
Inventory used in the ordinary course of business);
(c) Seller shall maintain, repair and renew the Assets in the
ordinary course, consistent with past practices (and in any event
to a condition equal to their condition on the date of this
Agreement, ordinary wear and tear excepted);
12
<PAGE>
(d) Seller shall maintain in full force and effect insurance coverage
(including any self-insurance programs) of the types and in the
amounts in existence on October 15, 1997, with respect to the
Assets;
(e) Seller shall maintain in full force and effect all Contracts,
licenses, authorizations and approvals necessary for or related
to the operation and use of the Assets as currently operated and
used; and
(f) Seller shall cause all transportation contracts entered into
after the date of this Agreement to either specifically permit or
not prohibit assignment to a purchaser of the Assets.
11. CONSENTS AND APPROVALS
11.1. Consents and Approvals. Purchaser and Seller each will cooperate and
use their best efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to prepare all necessary
documentation, to effect promptly all necessary filings and to satisfy
all other conditions and obtain all necessary permits, consents,
approvals, orders and authorizations of or any exemptions by, all
third parties and all governmental entities necessary to consummate
the transactions contemplated by this Agreement. Purchaser shall be
solely responsible for filings or proceedings before the Board with
respect to the approval of the acquisition of the Assets or securing
an exemption from that approval. Seller will, without cost to
Purchaser, cooperate in the filings and proceedings before the Board
and provide any reasonably necessary data in connection with securing
approval or exemption.
12. INDEMNIFICATION
12.1. General Indemnity.
(a) Except as provided in Section 12.1(b), Seller shall defend,
---------------
indemnify and hold harmless the Purchaser from and against any
and all claims, obligations and liabilities, and all costs,
expenses and reasonable attorneys' fees based upon or arising out
of any obligations, liability, loss or damage of any kind or
nature, including personal injury or death or property damage,
whether contingent or otherwise, known or unknown, (i) arising
out of Seller's ownership, operation, use or possession of the
Assets prior to the Closing, (ii) arising from breach of Seller's
representations and warranties under Section 6.1 or (iii) arising
-----------
from conditions on the Assets prior to the Closing.
(b) Except as provided in Sections 12.1(a), Purchaser shall defend,
----------------
indemnify and hold harmless the Seller from and against any and
all claims, obligations and liabilities, and all costs, expenses
and reasonable attorneys' fees based upon or arising out of any
obligation, liability, loss or damage of any kind or nature,
including personal injury or death or property damage, whether
contingent or otherwise, known or unknown, (i) arising out of
Purchaser's ownership,
13
<PAGE>
operation, use or possession of the Assets after the Closing,
(ii) arising from breach of Purchaser's representations and
warranties under Section 6.2, (iii) arising from conditions on
-----------
the Assets after the Closing or (iv) arising out of the
operation, use or possession of the Assets prior to the Closing
by the Purchaser or any of the Purchaser's predecessors in
interest whose liabilities and obligations with respect thereto
Purchaser has assumed.
12.2. Environmental Indemnity.
(a) Subject to Section 12.2(b), Seller shall defend, indemnify and
---------------
hold harmless Purchaser from and against any and all claims,
obligations and liabilities, and all costs, expenses and
reasonable attorneys' fees based upon or arising out of any
obligation, liability, loss or damage of any kind or nature,
whether contingent or otherwise, known or unknown, incurred under
or imposed by any Environmental Law (including, without
limitation, costs incurred for investigation, testing, remedial
or corrective action) arising out of Seller's ownership,
operation, use or possession of the Assets or arising from the
Seller's offsite treatment, storage, transportation, disposal,
management or migration of Hazardous Materials from the Assets,
prior to the Closing.
(b) Subject to Section 12.2(a), Purchaser shall defend, indemnify and
---------------
hold harmless Seller from and against any and all claims,
obligations and liabilities, and all costs, expenses and
reasonable attorneys' fees based upon or arising out of any
obligation, liability, loss or damage of any kind or nature,
whether contingent or otherwise, known or unknown, incurred under
or imposed by any Environmental Law (including, without
limitation, costs incurred for investigation, testing, remedial
or corrective action) arising out of Purchaser's, or any of the
Purchaser's predecessors in interest whose liabilities and
obligations with respect thereto Purchaser has assumed or to
which Purchaser has succeeded, ownership, operation, use or
possession of the Assets or arising from the Purchaser's, or any
of the Purchaser's predecessors in interest whose liabilities and
obligations with respect thereto Purchaser has assumed or to
which Purchaser has succeeded, offsite treatment, storage,
transportation, disposal, management or migration of Hazardous
Materials from the Assets, prior to or after the Closing.
(c) If any condition on the Assets prior to the Closing or if any
off-site treatment, storage, transportation, disposal, management
or migration of Hazardous Materials prior to the Closing has been
proximately caused by Purchaser or any of Purchaser's
predecessors in interest whose liabilities and obligations with
respect thereto Purchaser has assumed or to which Purchaser has
succeeded, then in such event, and to the extent of any such
causation and assumption, Seller shall not have any obligation
under Section 12.2(a), and Purchaser shall defend, indemnify and
---------------
hold Seller harmless from and against
14
<PAGE>
any and all such claims, obligations and liabilities, and all
such costs, expenses and reasonable attorneys' fees with respect
thereto or arising therefrom.
(d) If any condition on the Assets prior to the Closing or if any
off-site treatment, storage, transportation, disposal, management
or migration of Hazardous Materials prior to the Closing has been
proximately caused by Seller, then in such event, and to the
extent of any such causation and assumption, Purchaser shall not
have any obligation under Section 12.2(b), and Seller shall
---------------
defend, indemnify and hold Purchaser harmless from and against
any and all such claims, obligations and liabilities, and all
such costs, expenses and reasonable attorneys' fees with respect
thereto or arising therefrom.
12.3. Indemnification Procedures.
(a) The party seeking indemnification pursuant to this Section 12
above (the "Indemnified Party") shall give the party obligated to
indemnify (the "Indemnifying Party") notice of any claim or
assertion of liability by a third party with respect to which the
Indemnified Party is seeking indemnification (a "Claim").
(b) The Indemnifying Party shall have the right to undertake the
defense of such Claim (by counsel or other representatives of its
own choosing and reasonably acceptable to the Indemnified Party)
at the Indemnifying Party's sole risk and cost. Notwithstanding
the fact that the Indemnifying Party undertakes the defense of a
Claim, if there is a reasonable probability that the Claim may
materially and adversely affect the Indemnified Party, the
Indemnified Party (by counsel or through other representatives of
its own choosing) shall have the right, at its expense, to
participate in the defense, compromise or settlement of the
Claim.
(c) If the Indemnifying Party undertakes the defense of a Claim, (i)
the Indemnifying Party shall keep the Indemnified Party informed
of the status of the defense and furnish the Indemnified Party
with copies of all documents, instruments and information
reasonably requested by the Indemnified Party in connection with
the Claim; (ii) the Indemnified Party (by counsel or other
representatives of its own choosing and at its own expense) shall
have the right to consult with the Indemnifying Party (and its
counsel and representatives) concerning the Claim, and the
Indemnifying Party and the Indemnified Party (and their
respective counsel and representatives) shall cooperate with
respect to the Claim; and (iii) the Indemnifying Party shall not,
without the written consent of the Indemnified Party, settle or
compromise a Claim or consent to the entry of a judgment without
obtaining from the claimant or plaintiff an unconditional release
of all liability of the Indemnified Party in respect of such
Claim in a form satisfactory to the Indemnified Party and under
circumstances which do not require the Indemnified Party to pay
15
<PAGE>
any money or consent to the taking or withholding of any action
affecting it or any of its properties, assets or businesses.
(d) If the Indemnifying Party does not elect to undertake the defense
of a Claim or fails to defend the Claim within a reasonable time
after notice of the Claim, the Indemnified Party shall have the
right to undertake the defense, compromise or settlement of the
Claim (by counsel or other representatives of the Indemnified
Party's own choosing) on behalf of, for the account of and at the
risk and cost of the Indemnifying Party. In such event, the
Indemnifying Party shall pay (in addition to any other sums
required to be paid under the terms of this Agreement) the costs
and expenses incurred by the Indemnified Party in connection with
the defense, settlement or compromise of the Claim as and when
those costs are incurred.
13. TERMINATION
13.1. Grounds for Termination. This Agreement and the consummation of the
transactions contemplated by this Agreement may be terminated prior to
the Closing:
(a) By the agreement in writing of Seller and Purchaser at any time,
(b) By either Purchaser or Seller if the Closing does not occur prior
to January 16, 1998, and the failure of the Closing to occur is
not due to the fault of, or breach of this Agreement by, either
party,
(c) By Purchaser, pursuant to Section 4.1 hereof,
-----------
(d) By Purchaser, if Purchaser does not have the approval and consent
of its lender on or before December 19, 1997, pursuant to Section
-------
7.1(i) hereof,
------
(e) By Purchaser, by written notice to Seller, if there has been a
failure by Seller to comply with any of its material obligations
under this Agreement, and such material failure has not been
cured after 30 days' notice,
(f) By Seller, by written notice to Purchaser, if there has been a
failure by Purchaser to comply with any of its material
obligations under this Agreement, and such material failure has
not been cured after 30 days' notice, or
(g) By either Purchaser or Seller if the Board shall have disapproved
the transactions contemplated by this Agreement and such
disapproval shall have become final and not subject to further
proceedings or appeal, whether by lapse of time or otherwise.
Termination by Purchaser or Seller pursuant to paragraphs (c) or (d) above
shall not relieve the non-terminating party of any liability for breach.
16
<PAGE>
14. MISCELLANEOUS
14.1. Movement of Seller Equipment to Danville Junction. Within three years
after the Closing Date, Purchaser shall move up to 5 pieces of
railroad rolling stock free of charge for Seller from Groveton to
Danville Junction, provided that such pieces of equipment are capable
of safe movement on their own wheels and provided further that Seller
shall release and forever defend, indemnify and hold harmless the
Purchaser from and against any and all claims and liabilities arising
from such moves, other than as a result of Purchaser's gross
negligence.
14.2. Title and Other Descriptions. Prior to the Closing, the description
of the Assets may be changed by mutual agreement of Purchaser and
Seller to add or delete items of tangible property or Contracts. From
time to time after the Closing, at Purchaser's request and without
further consideration, Seller will execute and deliver other
instruments of conveyance and transfer and take other actions as
Purchaser reasonably requires to convey, transfer to and vest in
Purchaser whatever title Seller may have in and to the Assets, and to
put Purchaser in possession of the Assets. In the case of Contracts
and rights, if any, that cannot be transferred effectively without
the consent of third parties, Seller will request these consents
promptly and will make all reasonable efforts to obtain the consents.
From time to time after the Closing, at Seller's request and without
further consideration, Purchaser will execute and deliver other
instruments of conveyance, transfer and assumption and take other
actions as Seller reasonably requires to assume the liabilities and
obligations of Seller to be assumed by Purchaser pursuant to this
Agreement.
14.3. Waiver. Purchaser may in writing extend the time for or waive
performance of any of the obligations of Seller under this Agreement.
Seller may in writing take similar action with respect to the
obligations of Purchaser under this Agreement.
14.4. Expenses. Purchaser shall be responsible for and shall pay all
expenses, including attorney's fees, incurred by Purchaser in
connection with this Agreement and the consummation of the
transactions contemplated by this Agreement, and Seller shall be
responsible for and shall pay all expenses, including attorney's
fees, incurred by Seller in connection with this Agreement and the
consummation of the transactions contemplated by this Agreement.
Sales, use, gross receipts, transfer taxes, recording fees excise or
similar taxes or governmental charges arising or levied with respect
to the sale and transfer of the Assets shall be the sole and
exclusive responsibility of the Purchaser.
14.5. Transitional Matters. Prior to the Closing, Purchaser and Seller may
agree on different or additional procedures to implement their
respective rights and obligations, including procedures which are
required to minimize or avoid any disruption of the settlement of
interline accounts by draft in the normal course of business.
14.6. Information Releases. No press release, information release or other
public or private announcement of the existence of this Agreement or
of the pendency of the
17
<PAGE>
transactions contemplated by this Agreement shall be made by any
party without the prior approval of the other party, except as may be
required by law or the rules of the Securities and Exchange
Commission and the NASDAQ.
14.7. Entire Agreement. This Agreement, including the Appendices and
Exhibits attached to this Agreement, constitutes the entire agreement
and understanding between Seller and Purchaser with respect to the
sale and purchase of the Assets and the other transactions
contemplated by this Agreement. All prior representations,
understandings and agreements between the parties with respect to the
purchase and sale of the Assets and the other transactions
contemplated by this Agreement are superseded by the terms of this
Agreement.
14.8. Choice of Law. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of New
Hampshire, including for the purposes of choice of law, as though all
acts and omissions related to this Agreement occurred in New
Hampshire.
14.9. Severability. The provisions of this Agreement shall, where possible,
be interpreted in a manner necessary to sustain their legality and
enforceability; the unenforceability of any provision of this
Agreement in a specific situation shall not affect the enforceability
of that provision in other situations or of other provisions of this
Agreement.
14.10. Counterparts. This Agreement may be executed in two or more original
counterparts, each of which shall for all purposes be considered an
original of this Agreement.
14.11. Headings. Section and subsection headings contained in this Agreement
are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any
way define or affect the meaning, construction or scope of any of the
provisions of this Agreement.
14.12. Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of the respective successors and assigns of the
parties. Purchaser may assign its rights under this Agreement, in
whole or in part, to the Parent or to another a wholly-owned
subsidiary of Parent.
14.13. Notices. All notices given pursuant to this Agreement shall be
delivered by hand, sent by United States registered or certified
mail, postage prepaid, delivered by recognized express mail or
overnight courier service, or delivered by electronic facsimile with
a confirmation copy delivered by any of the preceding methods,
addressed as follows (or to another address or person as a party may
specify on notice to the other):
18
<PAGE>
(a) If to Seller:
New Hampshire and Vermont Railroad Company, Inc.
416 Main Street
Trenton, FL 32693
Attention: Mr. Clyde S. Forbes, Jr.
with a copy to:
David H. Anderson, Esq.
288 Littleton Road, Suite 21
Westford, MA 01886
(b) If to Purchaser:
St. Lawrence & Atlantic Railroad Company
96 South George Street, Suite 400
York, PA 17401
Attention: Mr. Robert Grossman
IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement as of the date written on the cover page.
New Hampshire and Vermont Railroad Company, Inc.
By: /s/ Clyde S. Forbes, Jr.
---------------------------------------
Clyde S. Forbes, Jr.
President
St. Lawrence & Atlantic Railroad Company
By: /s/ Robert Grossman
---------------------------------------
Robert Grossman
Chairman & CEO
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE EMONS
TRANSPORTATION GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,331,397
<SECURITIES> 0
<RECEIVABLES> 2,056,685
<ALLOWANCES> 130,018
<INVENTORY> 139,280
<CURRENT-ASSETS> 4,782,014
<PP&E> 30,841,382
<DEPRECIATION> 10,234,174
<TOTAL-ASSETS> 25,950,718
<CURRENT-LIABILITIES> 4,677,492
<BONDS> 11,337,559
0
15,391
<COMMON> 60,320
<OTHER-SE> 7,237,364
<TOTAL-LIABILITY-AND-EQUITY> 25,950,718
<SALES> 0
<TOTAL-REVENUES> 8,173,826
<CGS> 0
<TOTAL-COSTS> 5,495,592
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 549,434
<INCOME-PRETAX> 693,658
<INCOME-TAX> 43,000
<INCOME-CONTINUING> 650,658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 650,658
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.08
</TABLE>
